Jim ‘Mad Money’ Cramer Thinks Netflix Stock Could Top $400 a Share2 Feb, 2011 By: Erik Gruenwedel
Love him or mock him, CNBC financial analyst and “Mad Money” host Jim Cramer thinks Netflix shares — already trading at a bullish $214 per share — could top $400 per share, due in part to market anticipation of social media initial public offerings.
Speaking on his “Mad Money” program, Cramer said interest in new media stocks will result in a “valuation revolution” in companies like Netflix, Amazon and Google. He said pending IPOs for social media companies such as Facebook, LinkedIn, Demand Media and Coupon, among others, is prompting investors to think big.
“You have to learn how to look at stocks like Netflix through the lens of Facebook and the other social media names and not through the jaundiced eyes of the bears who have been wrong about this company for ages,” Cramer said. “If you think these stocks are expensive now, you are going to get an aneurism when you see the levels they trade to after the social media IPOs start coming later this year.”
Indeed, heading into Netflix’s recent fiscal report, scuttlebutt suggested the online disc rental pioneer’s stock was overvalued and primed for a fall. Instead, the company posted another record quarter sending shares up 15%.
Calling Netflix a “Cramer űberfave,” the analyst said the service’s stock has skyrocketed from $56 a share in October 2009 to $214 this week. He said when comparing Netflix’s successful subscription-based business model with social media ad-supported platforms, the streaming service’s shares “look a whole lot cheaper” to invest in.
He said Netflix has a better business model than LinkedIn yet is valued at half the latter’s 2010 revenue. Cramer said that assuming Netflix is valued at 10 times last year’s revenue, it would have a market cap of $22 billion, or $415 per share, which is 94% higher than its current price. He said Netflix is like Facebook with a subscription scheme, generating steady revenue, which is much more cherished by Wall Street.
“What if Netflix was a private company, had no history of publicly traded DVD-by-mail stock and its IPO was tomorrow?” Cramer said. “In that case, I think it would be worth double what it is right now, because people would look at 20 million subscribers, sky high accelerating revenue growth, and they wouldn’t be thrown off by the ridiculous objections of the short [sellers] and negative analysts who keep digging in their heels and refusing to admit that they are wrong.”