You buy Netflix for this 1 reason

Don't blame Reed Hastings if you lose money on this stock. I have never, ever seen a CEO give a more bright-line admonition than this.

By Jim Cramer Oct 22, 2013 11:37AM

Credit: © Paul Sakuma/AP
Caption: The exterior of Netflix headquarters is seen in Los Gatos, CalifDon't you dare blame Reed Hastings for losing money if you buy Netflix (NFLX) Tuesday.

 

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I have never, ever seen a CEO give a more bright-line admonition than this one: "In calendar year 2003 we were the highest-performing stock on Nasdaq. We had solid results compounded by momentum-investor-fueled euphoria. Some of the euphoria today feels like 2003."

 

Yes, this may be prelude to an equity offering. But there's something unprecedented here. Execs always want you to buy their stocks. They always think their stocks are cheap. They always think that it's a great time to buy.

 

But one of the best in the business doesn't. I think this is a note that says "we aren't trading on fundamentals, we are trading on heart, on culture, and, of course, momentum."

 

This is exactly what happens when you have a stock that goes higher automatically because certain benchmarks are hit that aren't earnings benchmarks. Think of how we value Netflix. Is it by earnings per share? Are you kidding? That means nothing. Is it by revenues per share? Absolutely not. No, it's by subscriber growth and subscriber growth crushed it. So, the decision is binary for many. Better-than-expected subscriber growth? Buy. Slower-than-expected? Sell. It's almost as if the funds that play this game have no choice. If they are short, they have to cover because the only thing they are really betting on is that fewer people signed up.

 

Now, remember, Netflix is a cult stock. It is one of my Anointed Ones from earlier this year, one that isn't divined by the four walls of the analyst canvas. It's like Amazon (AMZN), Solar City (SCTY) and Tesla (TSLA). Wow. Can you believe Elon Musk has two of them!

 

That means that if they do an equity offering, it might actually go higher like LinkedIn (LNKD), which did one in the hole and then never looked back. We know that Netflix has expansion plans that need to be funded, as well as continual demands to order new content and to pay for exclusives. We know that international's not easy. On the call, if you can call it that, the company even admitted that it was gamed by Brazilians playing sign-up games.

 

But we also know after this quarter that Netflix is the de facto worldwide gold standard for home entertainment and at $22 billion that's still -- sorry Reed -- cheap versus the opportunity and the ability to raise prices and negotiate more favorable deals from now on.

 

Yes, it does feel like 2003. Yes, this has become the ultimate caveat emptor stock. But yes, because of the way momentum investors evaluate stock, this one's good until it's bad, it soars until it crashes. Remember, there are always a couple like this in the stock market, except this one's lasted far longer than most. Now that it is too big to be taken over by almost anyone, as opposed to when I wanted Apple (AAPL) to buy it for $12 billion, you buy the stock for once reason: Because someone will buy it at a higher price than you.

 

Don't forget that rationale and you will be just fine.


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Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long AAPL.





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82Comments
Oct 22, 2013 12:44PM
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To change the subject....

 

We were unable to comment on the self serving Greenspan interview yesterday in which he denied responsibility for not forecasting or acting to prevent the  2008 crash.

 

A. I seem to recall him testifying before a congress about "bubbles".

B. I have personal knowledge that (some) people selling mortgages at the time understood the jeopardy they were creating.  Ditto (some) people selling real estate at the time. 

 

If wrong about A, I apologize.  That will never be necessary about B.  In which case, wasn't it Greenspan's job to know as well and act on the knowledge. 

 

Can we expect his attitude to  function as a template for Helicopter Ben in years to come?

Oct 22, 2013 12:28PM
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Jim: 

 

Don't pretend, for a minute that you have not been helping to squeeze the shorts in this stock for 9 straight months!  You did the same thing with RIMM and others.  Don't forget that you are also hurting retail investors who short , as well.  You also drive down stocks to ridiculous levels.  You helped drive BBY to below $12 and, now that it is at multi-year highs, you are telling people to buy it.  No shame whatsoever!  I just want to know what you get out of it.  Are you being paid off or do you do it for the sheer joy of having some power to manipulate stocks?

Oct 22, 2013 1:12PM
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If I knew how to accurately and consistently select stocks without any insider whispering -- with nothing illegal to assist me -- do you think you would ever be reading my thoughts? Do you think you would ever know my name? No, and no again.

 

 

Oct 22, 2013 11:57AM
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"Netflix is a cult stock. It is one of my Anointed Ones from earlier this year"

And yet he does not own it !!! 
Oct 22, 2013 1:37PM
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While Fox news is reporting news surrounding the website problems CNN is trying to find out who the girl is on the website.......... LMFAO

Oct 22, 2013 3:17PM
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The USA needs to quit following the old rules for SBA loans........ Loan some money to white men too. It just increases the pool of prospective borrowers and will push up the count on small business. They put people to work.

Oct 22, 2013 12:50PM
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At some point in this financial fantasy land folks will turn away from entertainment and actually need a consumerable like food clothes etc. I don't think these fun time stocks will burn quite so bright at that point.  Of course the Romans  found ways of entertaining the masses.  OOh there's an idea.  We could feed liberals to the lions and charge admission.
Oct 22, 2013 3:28PM
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I know one thing for sure. It is easier to find a job when you have a job. I think the long extensions on unemployment have been counter productive even though they were intended to be compassionate. Lots of those folks would have taken a crappy job and already be in a better job by now. JMHO
Oct 22, 2013 3:14PM
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The jobs problem is similar to a house setting empty....... after a while the house starts falling apart.... and after a person has been out of work for so long the companies stop considering them good candidates...
Oct 22, 2013 1:28PM
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Maybe if the IRS can recover some of the improper tax credits they can pitch in to fix the ObummerCare website.
Oct 22, 2013 2:50PM
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Brent
I am far from a right winger but don't try to spin this report, it was bad.  Comparing it to 5 years ago is getting really old, really fast.  I'm not going to say it's Obama's fault, lots of blame to go around, but enough of the "it's Bush's fault" and "it was worse before".  Those excuses are no longer cutting it.  The GOP have not helped I agree, but remember what did Obama do during the first 2 years when he had control of all 3 houses????  He passed a health care bill, not an infrastructure bill, or a jobs bill, but health care.  That should have been one of the first things he did, and by the way the stimulus bill was terrible, mostly giving states money to keep workers hired, until it ran out and they were let go anyway, as well as extending unemployment benefits which are now running out, and tax cuts that expired.  Nothing about re-training displaced workers and the infrastructure that was done was not nearly enough.  Once again I will say the GOP have stalled a lot of things in the house, but a good leader would have concentrated on what truly matters, and that's jobs.  He has 3 years and a quarter left, I truly hope employment improves in those 3 years.  
By the way, the rate is down because so many dropped out of the work force so don't even try to mention it.
Oct 22, 2013 1:14PM
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"Current PE of 422, forward PE of 95?  I do not invest in churches, cults, fads or religions."

Good lesson in Risk here. You do church mortgages based largely on tithings and congregational anchors. If the aged mainly contribute, you lose over the long run. In 2007-08, churches that went belly up demonstrated that loyalty cannot always be counted on. There must be substance beyond the collection basket.
While I subscribe to Net-Flix, I'm not sold on it exceeding expectations long enough to invest in it. An overwhelming deluge of media in a stagnant job-less economy suggests people will start seeking more out of real living than Hollywood fantasy. Especially since they seem to be making old blockbusters using computer animation instead of the creativity that made the original a cult phenomena. Perfect bodies on-screen contribute to stagnation depression. This too will go bust straight ahead. Phony is- dead. 
Oct 22, 2013 4:42PM
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They fail to mention that Diebold is also one of if not the biggest election equipment companies in the bribery story.  
Oct 22, 2013 12:15PM
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so throw a few bucks at it and move on down the road.

 

they set a standard of entertainment that didn't exist prior.  then others step in for competition.  price it out like amazon

Oct 22, 2013 11:57AM
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Traders are in Hog Heaven today ...good economic numbers to manipulate.  Employment is up, so too  is construction. and tapering won't happen until 2015 ... all good news.
Oct 22, 2013 4:39PM
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NEW YORK- U.S. stocks climbed on Tuesday, pushing the S&P 500 to yet another record high, after weaker-than-expected job creation last month reinforced expectations the Federal Reserve will hold the course on its economic stimulus into next year.

The Dow Jones industrial average was up 75.78 points, or 0.49 percent, at 15,467.98. The Standard & Poor's 500 Index was up 10.05 points, or 0.58 percent, at 1,754.71. The Nasdaq Composite Index was up 9.52 points, or 0.24 percent, at 3,929.57.


It's funding our death. No employment connected to it and 100% generated from fake money. Are we really this stupid or this greedy? 

Oct 22, 2013 3:18PM
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Canada had a re-training program as part of our stimulus, it extended unemployment and helped with tuition for those who wanted to be re-trained, however only in certain programs, ones that actually had demand for workers.  In Germany companies take a more active role in colleges helping design the programs so graduates had the skills they need.  They also give plenty of students scholarships with the condition that they work for them for a certain amount of time.  I think the USA needs both of these ideas.
Oct 22, 2013 3:14PM
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As far as Netflix goes, what matters these days in entertainment is content, and they have a ton of it. You can argue that if things get worse for the average person then this stock will suffer, well that is true for thousands of companies.  Still room to go for the stock, but perhaps time to wait for a dip as when something goes too high, too fast, it dips.
Oct 22, 2013 3:05PM
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150 thousand a month is needed to keep up with new workers entering the market, this one was 148 thousand, that's not recovery like numbers, that's actually going the wrong way by 2 thousand.  You need a year of 200 thousand plus a month to really put a serious dent in the problem, even then you need more.  Better then job losses, but by now we should be expecting better then that, in fact we deserve much better.
Oct 22, 2013 12:17PM
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Jimmy, with all the Cheap Credit Available, they can be bought. The biggest problem is most buyers don't care to overpay for an at this stage, an clearly over-hyped company. They could instead use that money to build their own at least Half the Price.
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