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Consumed with Disdain, Street Missing Netflix Virtues?

Tuesday, 23 Apr 2013 | 6:53 PM ET
No Huddle Offense: Netflix
Tuesday, 23 Apr 2013 | 6:58 PM ET
Mad Money host Jim Cramer shares his final thoughts of the day.

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If ever there was a stock on Wall Street that confounded investors, it's Netflix.

In 2011 shares surged to nearly $300 as buyers insisted the company had carved itself a valuable niche in the ultra-competitive world of movies and media.

However within the span of 1 year, shares slipped as low as $57, with sellers insisting that Netflix was nothing more than a fad stock and that the business model might not be sustainable.

"It had become hated by people," mused Jim Cramer on Tuesday's broadcast. And Cramer believes that disdain blinded the Street to all that Netflix is doing right.

Stephen Morris | Vetta | Getty Images

According to the Mad Money host, there are at least 5 catalysts driving buyers into Netflix. They are:

1. The Street assumed that when Netflix announced price increases in 2011, the backlash signaled the end of the company. "What people didn't understand was that compared to cable, Netflix remained a real bargain. Young people that don't have a lot of money were ok paying $7.99 a month for just online streaming – they didn't need the DVD service."

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2. "Although the mea culpa of management was dissed by Wall Street the customers loved it," Cramer said. In other words, when the CEO of Netflix issued a public apology for mishandling price increases in 2011 the move endeared the company to its customers. "And those who turned off the subscriptions came right back. That was not something the Street expected," Cramer added. And it speaks to the relationship people have with Netflix.

3. Netflix bears insisted the company's cash flow would present serious obstacles. Netflix had negative free cash flow of $42 million in the last quarter. "The company was thought to be incapable of raising money that it needed to survive. But these are more bountiful times." In other words, the company has access to the money it needs to acquire content.

4. Netflix has a 'cool' factor and it's rapidly approaching HBO with total numbers of paying customers. "HBO had 28.7 million paid U.S. subscribers at the end of the year, according to SNL Kagan, while Netflix's paid streaming subscribers at the end of March totaled 27.91 million," wrote the Wall Street Journal.

5. People watch TV differently and the popularity of long-form arc series play to Netflix' business model. "You can't just start watching hot shows such as Breaking Bad or Walking Dead or Mad Men," said Cramer. "If you're new to the series, you have to watch from the beginning." In other words, Netflix provides access to earlier episodes of a series.

All told, Cramer thinks Netflix has landed in the sweet spot.

"Netflix exists because people want to watch programming when they want to on the device they want to," Cramer said. And that's a trend the Mad Money host doesn't expect to change anytime soon.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

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