Important points
CNBC’s Jim Cramer said Monday that Netflix’s sharp decline makes the streaming giant worth another look. “The best companies rarely go on sale, but you can afford to take your time with this one,” the “Mad Money” host said. “If you still believe in Netflix, I would build a small position here and then weaken and gradually add to it.” Netflix stock has fallen about 44% over the past year, including an additional 10% drop after last week’s earnings report. Although the company’s second-quarter sales fell short of Wall Street expectations, the more troubling aspect is that they are expected to fall short of management’s expectations and that the path to reaccelerating sales is becoming increasingly difficult, Cramer said. For the full year, Netflix expects revenue to increase 13% to 14%, down from 16.5% growth in 2025. “I wouldn’t say the quarter was great. It was disappointing,” he said. “The content is clearly not as strong as it usually is,” Kramer said, adding that Netflix no longer enjoys the competitive advantage that once made it the undisputed leader in the streaming industry. Hit content is becoming more important as consumers can now easily move between services, he said. This is one reason why he argued that Netflix could have benefited from acquiring Warner Bros., adding to its rich library of intellectual property. Netflix withdrew from the deal after WBD’s board determined that Paramount’s revised bid was the superior offer. Kramer said Wall Street was also upset by Netflix’s decision to further reduce its disclosures. Netflix has announced that it will release its “What We Watched” engagement report annually instead of twice a year. The decision comes after the company stopped reporting quarterly membership numbers last year. Despite these concerns, Kramer said the stock has become much more attractive after nearly a year of declines. He noted that at about 19 times this year’s earnings estimates, Netflix is trading at its lowest valuation since 2022. The company also repurchased $4.7 billion in stock in the second quarter, the highest amount ever for a single quarter, and still has about $27 billion remaining under repurchase authorizations. “I think there’s a reason they’re buying back stock at the fastest pace in history,” Cramer said. He added that Netflix remains one of the industry’s strongest businesses, with growth opportunities extending into advertising, live programming and gaming. Management expects advertising revenue to roughly double this year and estimates that advertising reaches less than 45% of broadband-enabled households. “This is not a failed company,” Kramer said. “This is one of the best companies with the best product.” Still, Cramer cautioned investors not to mistake cheap stocks for quick returns, as “I wouldn’t be surprised if the downturn continues for a while.” Subscribe to CNBC Investing Club today to follow Jim Cramer’s every move in the markets. Questions about Cramer’s disclaimer? Call Cramer: 1-800-743-CNBC Want a deeper look into Cramer’s world? Punch him! Mad Money Twitter – Jim Cramer Twitter – Facebook – Instagram Have questions, comments, or suggestions about the Mad Money website? madcap@cnbc.com
