NEW YORK (TheStreet) -- Through Netflix's (NFLX) - Get Netflix, Inc. (NFLX) Report momentum-driven frenzy past $300, bulls ridiculed me. When the stock crashed toward the end of 2011, I was vindicated, although I do regret not taking what the market gave -- as irrational as it was -- and riding the dog long for at least a little while.
In any event,
and the cluelessness continues into 2012-13.
upgraded NFLX on Monday. At his blog,
, where in the heck were they prior to NFLX's 30% two-week run?
In late July, I started turning bullish NFLX.
, I cited content costs as one of several reasons for my change in sentiment. That was part of Morgan's Johnny-come-lately bull case from this week.
At the end of July, NFLX traded for $57.75. Of course, it ended Monday's session at $73.52 before pulling back a bit Tuesday.
After the stock's recent run, there's mixed opinion on NFLX. You have houses such as Morgan recommending it. Take that with a grain of salt.
And you have
downgrading it on the basis of valuation and the recent run. While I appreciate the call for caution, I rarely use valuation and strength as reasons to stop buying a growth/momo stock, particularly if you're looking at it as more than a trade. For long-term investors, nothing but the forward-looking story matters; therefore, if you're bullish, this weakness could present a buying opportunity.
That said, I tend to agree with
Jim Cramer, who simply calls the stock
That's how stocks driven by a mix of emotion and clueless Wall Street sentiment roll. They gyrate for no apparent reason. And the so-called expert analysts only make accurate assessments when their insight and information has become painfully obvious. That makes it difficult to commit. I prefer to stay on the sidelines.
One of the few folks who was on the ball, re: NFLX, throughout 2011 is
Herb Greenberg. On Monday, he wrote a piece that gets at a core Netflix issue:
It certainly has domestically. And you can't blame Netflix for this. It's merely a function of the subscription model. As Greenberg points out, that presents quite a conundrum for a growth company.
He doesn't mention the one thing Netflix is banking on to drive subscriber growth -- international. I don't blame him. It's just not going to happen in any part of the world at the level Netflix needs.
So, what's the solution? In theory, it's simple:
In practice, that's not as easy as it sounds given the way Reed Hastings (mis)handled last year's increase. That's one of the reasons why I argue that
. Somebody to massage the public into going along quietly with a significant price hike.
As I explain in the above-linked articles, there's no reason, other than blowback from last year's controversy, why Netflix should not be able to raise prices. It offers a service that is worth way more than $8 a month. Cable, satellite,
-- they all do it.
Some pull the move off without a hitch (SIRI), while others (cable, satellite) get away with price hikes at the same time as customers spew vitriol their way.
I can't see a way forward for Netflix other than a price hike, hopping into the crowded advertising space (they would blow it) or opening its platform up in two ways -- increasing content delivery methods and working in relevant e-commerce components.
In the past, I recommended the company get into the adult streaming market by taking out privately-held
, but that's not happening.
So then, Netflix needs a cash cow. DVD once served that purpose, but Hastings blew the business up. He also says he will not offer on-demand, al a carte options because that's never been what Netflix is about. I assume he's against advertising and e-commerce for similar reasons.
Hastings has a model in his head -- Netflix Streaming at $8 a month across the globe -- and he's stubbornly sticking to it. Not a good idea.
It's odd. Mark Zuckerberg, the CEO at much-maligned and strongly hated
can teach veteran executives how to deal with crisis and adjust on the fly.
As I detailed earlier this week,
CEO Meg Whitman can learn from Zuckerberg. And so can Hastings. If Zuckerberg can stray from Facebook's social mission even a bit, why can't Hastings do something similar?
Netflix's survival depends on it.
At the time of publication, the author was long FB
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Rocco Pendola is a private investor with nearly 20 years experience in various forms of media, ranging from radio to print. His work has appeared in academic journals as well as dozens of online and offline publications. He uses his broad experience to help inform his coverage of the stock market, primarily in the technology, Internet and new media spaces. He has taken a long-term approach to investing, focusing on dividend-paying stocks, since he opened his first account as a teenager. Pendola, 37, is based in Santa Monica, Calif., where he lives with his wife and child.