Cramer: Netflix Is ‘Unstoppable’
Netflix is the company that just won’t die, Cramer said during Tuesday’s Mad Money. No matter how many times he’s counted the stock out, it has risen again like Nosferatu, haunting him with its strong performance. Well, today he stopped the crusade and joined the coven.
“I can’t fight this unkillable stock,” Cramer said.
Netflix is up 21% since the last time he shot it down as a potential buy, on Aug. 20 when shares traded at $44.98. The charts are predicting a pullback, though, at least in the short term. But after that initial decline to $50, says one of Cramer’s fave technical analysts, NFLX could climb to $70.
Still, that’s only part of the bullish case for Netflix. The fundamentals are “fabulous,” Cramer said, thanks in no small part to a monster earnings beat last week. The company grew its subscriber base by 28%, as a result of declining video stores and the rise of Internet video streaming. That’s growth on par with Google and Apple . Also, sales jumped 24% year-over-year, net income soared 48% and earnings per share topped them all at 58% higher than the same period last year. Netflix projects full-year net-subscriber growth of more than 2.7 million, which is 77% than the number offered by management back in January.
Cramer credited Netflix’s business model with the company’s success. Customers pay a monthly fee for unlimited DVD rentals, and that fee is subtracted from their bank account until they take the time to cancel their subscription. Customers also get video streaming, which is a departure from the per-per-view model employed by Apple and Amazon . But Cramer said there was enough room for both strategies, so Netflix’s growth should continue.
On Monday, the company announced a deal with Sony’s PlayStation 3, which will allow gamers to rent movies through the console. Netflix put an estimate on the initiative’s potential: 350,000 subscribers. But given that a similar deal with Microsoft’s Xbox brought in 1 million, Cramer guessed that number might be a bit conservative. Not to mention, the PS3’s user base is about 10 million people, opening Netflix up to a whole new market, and there’s the potential for an agreement with Nintendo’s Wii as well.
What else? Netflix plans to go international in the latter half of 2010, and the company’s headed into the holidays with a ton of momentum. The stock’s up 81% year-to-date, trading at 21 times expected 2011 earnings. That’s relatively cheap, considering that earnings should grow at a rate of 18.6% from 2010 to 2011. Cramer said that number could be low, as Netflix has a history of better-than-expected quarters.
“Netflix is unstoppable,” Cramer said, “and it is really time we acknowledged it.”
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