Netflix nails it

Let's go over what it did right that the Street didn't expect.

By Jim Cramer Apr 23, 2013 8:51AM

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Watching television © image100 CorbisCould there be a more perfect result for a stock called Netflix (NFLX), a stock with only six analysts in favor of it and 30 against? Could the stars align more closely for this stock, which has, at its core, a group of haters that live to be short the darned thing, not unlike those who shorted Amazon.com (AMZN) in the $100s three years ago?


Netflix exists because people want to watch programing when they want on the device they want. Netflix succeeds because it is inexpensive. Netflix thrives because of the change in programming on cable and how much more people like cable shows than they do network shows except for a couple enduring comedies and some longer-running dramas.


But because it stumbled and because it seemed to be out of money when it dropped below $100, it had become hated by people who either didn't understand it or dug in their heels rather than declaring victory as they might have on the long side.


In short, it went from loved to hated faster than I have ever seen a stock travel that distance except the speed with which it is now loved again by owners and still needs to be loved by analysts. Hence how it could have such a huge move last night.


Let's go over what Netflix did right that the Street didn't expect.


First, when it screwed up and created that screwy plan to force adoption to online, the owners and the analysts figured that was the end of Netflix -- that users would be so angry they would switch to Amazon or Apple's (AAPL) iTunes. What people didn't understand, though, was that the Web was adapting so fast to high-speed at the same time that the tablet had been born that Netflix was simply too cool a product not to have. And when you compared it to cable, it's a real bargain, especially because, other than sports, who the heck cares when you watch something.


Second, the mea culpa of management was dissed by Wall Street, but the customers loved it. The customers came right back. That wasn't in the playbook.

Third, the company, while spending far more than it had, was thought to be incapable of raising the money that it needed to survive. But these are more bountiful times than analysts realize. In a sense, Netflix was still one more company bailed out by the hated Ben Bernanke, who is supposed to be more like a European central banker and make money tight to appease the ideologues, even as the discrediting of austerity is a daily event.


Fourth, analysts and hedge funds are simply not believers that content can ever move a needle. They forget that HBO, the model they love that will soon be pushed behind by Netflix's accelerating growth, grew on the back of "The Sopranos" the way "House of Cards" spurred Netflix. It's not supposed to happen, but it did.


Fifth, analysts didn't see the symbiosis with the new kind of television profit center, the long-form arc series, where you can't just crack into it. You need to start from the beginning, and Netflix is riding the success of everything from "Breaking Bad" and the "The Walking Dead" to "Mad Men" and "Downton Abbey." It doesn't hurt that the programming crosses all ages and can be watched in binge fashion.


Finally, the rich people who are analysts don't understand the new frugality -- that folks don't want to pay for cable or for Amazon or iTunes. Netflix is their bargain.


All of these cut in favor of the Netflix bulls and eviscerated the Netflix bears at precisely the time when the bears were supposed to win. It's a textbook failure of typical security analysis, and it's the handiwork of a brilliant exec, Reed Hastings.


Oh, and one more thing: Maybe now, as a $12 billion company, Netflix will at last be seen as the potential growth engine acquisition for Microsoft (MSFT) or Apple, although the former is too go-it-alone and the latter is just too arrogant to ever figure it out.

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Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long AAPL.  

 

 

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47Comments
Apr 23, 2013 10:22AM
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I dumped dish last year ($60/mo) and started Netflix for $8. Now I watch what I want when I want with zero commercials, no 24 hour news chicken little blabbers, no carnival barker shopping channels, and I got rid of a lot of other channels I didn't like too. As an added bonus, I'm not helping to pay the extremely bloated salaries of most of the people on those channels. The only way I see dish and the others could compete, is if they get rid of this packaged programming, and allow customers to pick 10 channels they want for say $10/ month.
Apr 23, 2013 11:07AM
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Is this the same guy who said the Dow should be eliminated?Jim and others who want to keep pumping **** out of their mouths are not going to change anything.Who cares if any of these companies beat wall streets educated guess,the bar is set so low my grandma could jump over it.The real problems with this country and the rest of the world are not being fixed in a manner that will provide us with a good future.I wonder if the white house would accept the trillion dollar bills I have in my wallet.
Apr 23, 2013 9:50AM
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I honestly down't quite understand why people rush to Netflix instead of Amazon Prime.  Amazon Prime has roughtly the same or better offerings for free plus you get free shipping on Amazon purchases!  All for less than a Netflix online subscription.  I'm hanging out for another month, Arrested Development's final season.. then I'm dropping.

 

Besides, Amazon Prime is also making their own content too...  Zombieland.. THE SERIES!

 

Just about everything Cramer's saying is about streaming viewing.  You only need to drive around on a fruitless search for a video store, something as rare nowadays as a twinkie in a post-apocalypic wasteland, to see that's the model that's won.  Netflix just isn't the only game in town, and it can very easily be a very competitive market.  It's all about who can throw cash at the providers to supply content without ticking off the providers.  I think Amazon and ITunes have a good model here because not only can you watch the authorized stuff for free.. but the providers can also sell movies and shows on the same platform.

Apr 23, 2013 10:44AM
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 In regards to Netflix and its' positioning.  There always seems to be one darling thrust into the spotlight and "played" and enjoyed by all.  Just all about the timing.  Like the casino it is a lot of luck.  You choose to sit down and by luck you hit a jackpot.  So for all the "analysts" who claim some sort of analytic work paying off I say BS.  We most definitely needed something to replace Facebook as a trader stock because that entire issue was always a joke and so Netflix gets to be the new "chosen" one to ride the wave. Just have to make sure you get off before it crashes on shore.  JMHO
Apr 23, 2013 9:51AM
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the netflix model is easy and affordable.  $8 streaming content.  $9 to get DVD's (which are generally the current releases). 

 

i wonder if they will track like AOL did however.  gather the masses, raise their fees, then collapse? 

Apr 23, 2013 10:00AM
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Slow your roll Jimmy. Folks are just as put off by the lack of good shows on Cable. Netflix just gives folks more options. For now, that is working. Whether Netflix can hold to any edge is anyone's guess. Expect more players to the game, soon.
Apr 23, 2013 12:11PM
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From the toilet to the top in less than two weeks. Previously this was considered one of the worst stocks to own, according to MSN Money. Glad MSN Money is so consistent. (huge eyeroll)
Apr 23, 2013 9:42AM
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"Finally, the rich people who are analysts don't understand the new frugality"   Is this not a very funny Cramerism?  He covers a lot of ground in 12 words. But anyway, concentrating on at least one of the points Netflix seems destined to success and has created its' own niche that plainly and totally makes sense.  I think the aha syndrome applies well in this instance.  And Microsoft does need something new in that Windows 8 doesn't seem to have much magic, but perhaps they have become; which I suspect,  a lumbering giant incapable of adopting a new direction.  By the time their management gets around to being able to make a decision the horse will have left the barn.  I personally think MSFT is now as great a short as Netflix is a long.   JMHO 

 

Apr 23, 2013 7:20PM
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Ended up nicely....Some people here appeared that died and went to heaven when the markets gave most back after that bogus report, they couldn't be happier...Short lived though...The good guys came out on top...Will not get any easier tomorrow though...We shall see.
Apr 23, 2013 10:24AM
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Netflix is a momentum play. I just took a peak at the numbers. About a 3 million dollar profit on revenues of a 1 Billion. Reports are it cost them over 2 seasons about 100 million to do House of Cards. With Companies like Apple and Google flush with Billions in free cash to play the same game, it's fitting that Nexflix can easily become a House of Card, tumbling. Until then, enjoy.
Apr 23, 2013 4:53PM
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Bottom line, can they afford paying yearly for original content. I would love to see some of the canceled shows that never got a real chance in spite of their quality,  get a second chance on places like Nexflix. The model folks want, pick and choose not only what to watch, but timing of their own choosing. Recycle crap won't get it either. There will be a huge demand for good original content going forward.

However, always Be careful of Pump and Dump plays. Jimmy.
Apr 23, 2013 11:07AM
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I've been a Netflix subscriber for a couple of years. I do not understand why Netflix is succeeding when its movie selection is so poor. The online browsing capability through internet TV boxes stinks. There are a significant number of Chinese films with English subtitles that are offered. Very few premium films are offered; most of the offerings in the B and C class. I like 1930's and 1940's mystery movies, the Netflix selection is very weak. I can get more Charlie Chan movies on youtube than I can on Netflix.

The only reason that Netlix is succeeding is because, despite the hundreds of channels on cable and satallite TV, progamming is so bad with a myrid of junk channels and programming repetition. The Netflix technology model is simple and can be readily copied by any mom and pop shop who wants too. Netfix is likely to be a flash in the pan.

Apr 23, 2013 9:49AM
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THE REAL PROBLEM...

Anybody noticing that day after day we seem to let some massively Earth-stopping problem like North Korea or Iran or Lawyers Who Didn't Intervene With Banks Illegally Foreclosing or Ben Bernanke fiat printing us into oblivion or hired-in "talented" executives who can't run companies but they can gamble in the markets or Obama's inability to pretty much do anything or Congress failing to arrest themselves for ruining America or why we have online everything instead of jobs, including online job posting that never actually gets people jobs or why we aren't growing our own food or why Monsanto is allowed to corrupt nature or why big oil can do whatever the F it wants as we are forced to live in homes that are underwater or won't sell or get repossessed so baby mommas can buy them or why anything that was once "AMERICA" is now illegal and everything no person other than psychopaths would condone is all we are exposed to? What the Hell? If we: Close the banks, End the Fed and get RID of Wall Street... we might have some discomfort for a week or two days... but then after that... all the pariah would have used their passports to skip out of the country and it would be available to normal people again. We want our America back. We want psychopaths out.

Apr 23, 2013 11:28AM
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Jim is right about one thing.  The cost of cable is exorbitant.  I listened to many kids who wouldn't think of signing up for regular cable because they can't afford it.  Maybe the older folks haven't adapted quite as fast.  If i could somehow get the comp. hooked into my bedroom and didn't have to fiddle getting up to change channels I would be a player for sure.  I'm sure there must be a way but i haven't figured it out on my own.  So is there a way I can move Netflix onto my bedroom flatscreen and still have a convenient ability to change channels?  Sitting at the Comp desk in the family room doesn't cut it.
Apr 23, 2013 10:40AM
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Cramer on Netflix Apr 3rd 2013  "Now, given that Netflix was up 100% in the first quarter, I believe it can come down" .......
Apr 23, 2013 10:28AM
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Not really sure why Blowem came out of the woodwork, probably per Mr. Brucey's instructions.?

 

Ahhh, a grain of salt, just a grain of salt....Too many Analysts, so little time...

 

Lt. Danz, will be here in a little while, got to set the day's agenda..

I'll bet my Lt. Danz, can whip Mr. Brucey's azz...He may not know Ka-rot-te, but he has a hammer..

 

A Hundred to the upside, and no explanation from CGT1....Absolutely amusing.

Apr 23, 2013 10:20AM
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TV shows: What is weird is that the more choices we have, the less quality there is, as if quality were a limited commodity and just because the producers expand doesn't mean there will be more quality. Now you just have to look for it in more places.
Apr 23, 2013 12:29PM
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"Netflix nailed it" ..another genius observation. this guy is a real historian. next he will report on who won superbowl  one.
Apr 23, 2013 10:20AM
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We opened up to the upside nicely...Earnings haven't been as bad as the doom and gloom folks predicted,,,,Up over 120 on the Dow now; be cautious as usual though, you know how things can turn on a dime down here....Scumbags will never bury themselves, wish they would....More later.
Apr 23, 2013 11:46AM
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Third Cramer, Bernanke did not save anything.  The government does not save it consumes, otherwise we all would be government workers.  Bernanke is a significant reason we have no growth with more money swirling around for the same stuff.  Cramer, you are better off staying away from economics.
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