Cramer on Monday admitted he was wrong about Motricity, adding “this is simply not the stock that I originally thought was worth pounding the table about.”
When you make a mistake, the "Mad Money" host said you should recognize it and know when to cut your losses. So, is now the time to walk away from MOTR ?
Cramer initially recommended the Bellevue, Wash.-based company back in October 2010. The “on-ramp to the mobile Internet super-highway,” Motricity provides Internet capability to non-smartphones, or "dumbphones." In the month after Cramer got behind the stock, it soared to $30.74 for a quick 76 percent gain. Since then, it's only continued to fall. So what happened?
The problem is that people began adopting smartphones much faster that Motricity expected, Cramer explained. When you have a smartphone, you don’t need Motricity to go online.
On Tuesday, Motricity reported what Cramer thought was a decent earnings report. It delivered a 1 penny earnings beat on slightly worse-than-expected revenues, but the stock continued its slide until it bounced back on Monday. Cramer thinks the company is facing two problems. For one, he thinks its management team lacks credibility.
“These guys just don’t seem to have a handle on what’s going on at their company,” Cramer said. "They don't realize they aren't getting it right."
Cramer is also worried about the viability of Motricity's business model. While dumbphones still represent 78 percent of total global handset traffic, the growth is in smartphones. As people make the transition to smartphones, Cramer said Motricity has failed to stay relevant. It hasn't produced anything smartphones need and appears to becoming obsolete.
Motricity, however, is quickly growing overseas. Its international segment could make up 50 percent of the business within two years thanks to the proliferation of dumbphones. But Cramer wonders how long this is sustainable and how quickly even poorer countries will start transitioning to smartphones.
In the end, Cramer doesn't recommended selling MOTR immediately. He thinks the stock seems oversold and anticipates some near-term catalysts are coming soon. If we get any positive commentary, he recommends MOTR selling into strength.
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