Cramer Changes Tone on Netflix (NFLX), Says Recovery Will Be a Tough Path

September 15, 2011 4:38 PM EDT
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Investment virtuoso Jim Cramer may be doing the unthinkable...

He's getting bearish on Netflix.

Cramer thinks Reed Hastings is a great CEO for Netflix, and had given him the company the benefit of a doubt. He gave them two strikes, and now they're out.

The first level of damage was the price increase. On Twitter, Cramer said the number of cancellations following the news took him by surprise. Everyone was messaging him saying they were going to cancel the service, and so on. Percentage wise, the increase was huge, but dollar-wise it wasn't, according to Cramer.

Cramer spoke with colleague Herb Greenberg earlier in the day, and Greenberg said the Netflix price hike was an unpopular decision in a product that people love, which Cramer agreed with.

The second strike was the abandonment of the Starz (Nasdaq: LSTZA) deal.

Can Netflix fix its issues? Jim Cramer says there is still some organic value in Netflix, but the multiple has been shaken.

He concluded by saying he probably should have advised to get out at $230 or $220, however he didn't because he trusted Reed Hastings. Cramer believes the stock could bounce, but warned of it's momentum stock status, saying once a momentum stock has several strikes against it, recovery is pretty tough.

Netflix shares closed down 18.9 percent at $169.25.

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