Trouble Continues For Netflix Inc. (NFLX): Jim Cramer

Netflix, Inc. (NASDAQ:NFLX) is on the path of doom with one bad news after another. First, it was the disappointing quarter results and then, the plunging stock prices. Netflix stock took a dive falling nearly 19% in one day. Jim Cramer dissected the Netflix debacle and gave his two cents on CNBC’s Mad Money.

“When a stock loses a fifth of its value, it is a disaster,” began Cramer. He was of the opinion that the expectation for the quarter set by Netflix, Inc. (NASDAQ:NFLX) was too ambitious. He said that the company’s bullish prediction stemmed from the assumption that its subscribers would continue to grow. This view precipitated an optimistic outlook from analysts in spite of the stock being quite dear to begin with.

“When they stumble in that one key metric that everyone cares about, then there is nothing to stop them from going into free fall and that is exactly what happened with Netflix,” explained Cramer about cult stocks such as Netflix, Inc. (NASDAQ:NFLX). In this case, the metric in question was the company’s unrealistic growth expectations. It managed to add about 3 million subscribers worldwide which was nearly half a million lesser than the company’s estimate. This statistic went on to show that not only Netflix’s subscriber growth was lesser than expected, but its year on year growth rate was also decelerating. This was very bad news from an investor’s perspective.

Cramer noted that Netflix, Inc. (NASDAQ:NFLX)’s disappointing subscriber and financial numbers were not the only reason for its fall. News of a stand-alone HBO Go service from Time Warner Inc (NYSE:TWX) and another service on similar lines from CBS Corporation (NYSE:CBS) coming just around the same time as Netflix’s mediocre report had a huge impact on the fate of its stock. He also mentioned that the negative free cash flow observed in the quarter was one of the ingredients of the resulting explosive mixture. He concluded by saying that it was not too late to sell Netflix.

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