Netflix Potential for Stock Split: Consideration on the Horizon
Netflix Potential for Stock Split: Consideration on the Horizon
Netflix (NFLX dropping 0.65%) might not be the first tech stock that comes to mind for some folks.
Initially, Netflix was a part of the prestigious FAANG group of stocks, a term that refers to the tech giants that dominated the market in recent years. However, Netflix is the sole stock from that group that didn't make it into the "Magnificent Seven," the updated elite group of tech stocks.
Despite this, investors might want to reconsider Netflix's standing after its exceptional performance recently. The streaming service's stock is having a stellar year, increasing 82% as their initiatives in advertising and password sharing prevention pay off, leaving traditional media outpaced. In recent times, the stock has escalated even further, driven by positive reactions to events like the Jake Paul-Mike Tyson fight and anticipation over Netflix's expansion into live sports and events.
As a result, Netflix's share price has skyrocketed and it could potentially reach $1,000 per share by year's end. It ended Nov. 20 at $883.85, placing it among the highest share prices in the S&P 500. This lofty position is making some investors hopeful for a stock split.
Companies occasionally split their share prices to make them more affordable for individual investors and employees. Stock splits can also facilitate options trading and even allow certain stocks to join the Dow Jones Industrial Average. While these splits do not alter the company's fundamentals, they do make individual shares more budget-friendly. For instance, when you previously owned a quarter of a pie, you now have two eighths, but it's the same percentage – just more pieces, or shares.
Given this context, will Netflix split its shares? Let's examine the reasons why a Netflix stock split seems plausible:
Netflix's stock split history
Netflix has performed two stock splits in its history. It conducted a 2-for-1 split in 2004 and followed it with a 7-for-1 split in 2015.
At the time of its 2015 split, Netflix was trading around $700 per share. Meanwhile, in 2004, Netflix only needed to reach $72 per share for a 2-for-1 split.
Netflix was a much smaller company during those times and was governed by different management. However, historically, the company has chosen to split its stock rather than allow it to rise to such high levels.
Why a split would be beneficial
Netflix has seen significant growth this year with its subscriber base surging and its mojo returning. Despite this, the stock hasn't attracted the same level of attention it did in the 2010s.
A stock split could help Netflix reclaim some of its past fame. For example, consider Nvidia's share split earlier this year.
Stock splits do not change a stock's fundamentals but they make individual shares more affordable for retail investors. Additionally, according to a Bank of America report, stocks often perform better after announcing a split. However, it's uncertain why that is. The timing of a stock split is typically controlled by management, and if they lack faith in the stock's future growth, they're unlikely to enact a split.
Taking into account its current momentum and enthusiasm over advertising and live sports, Netflix seems primed for further growth.
Will Netflix split its stock?
Netflix management hasn't mentioned any plans for a stock split yet. Moreover, the stock just surpassed the $800 mark. However, a stock split seems increasingly probable. Netflix has a history of splitting its stock when the share price reaches this level, and the stock also appears poised to keep rising, which might prompt management to act.
Ultimately, investors should assess the stock based on its fundamentals rather than its potential for a split. However, a split could rekindle interest in Netflix, potentially driving further growth for the company.
Investors might be tempted to put more money into Netflix, considering its recent exceptional financial performance and the potential for further growth. With Netflix's stock reaching new heights, some may speculate about the possibility of a stock split, as the company has a history of splitting its shares when the price reaches certain levels.
Given the benefits of stock splits, such as making individual shares more affordable for retail investors, Netflix's potential split could rekindle interest in the company and potentially drive further growth.