Investing

Here's Why Netflix Will Likely Announce a Stock Split

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Netflix (Nasdaq: NFLX) has come a long way since its 2002 IPO price of $15. Founded in 1997 by Reed Hastings and Marc Randolph as a postal-mail DVD rental service, Netflix transformed the way media was consumed, thrusting content streaming into the spotlight in the early 2000s and leading to the demise of video stores like Blockbuster.

With shares currently hovering around $561 and a trailing PE ratio of 55, the stage is set for the stock price to revisit past highs. Netflix has implemented two stock splits in its history: a two-for-one split in 2004 and seven-for-one- in 2015. Therefore it stands to reason that Netflix’s board, on which co-founder Reed Hastings is chairman, could decide to generate excitement around the company with another stock split, especially considering the upward trajectory of shares year-to-date.

While there’s been some selling in the wake of Netflix’s Q1 report, owing to the company’s decision to stop publishing subscriber numbers next year, investors are likely to view the pullback as a buying opportunity in this large-cap growth stock.

Market Perceptions

With a market cap of $241.8 billion, Netflix is a leading tech stock that has delivered tremendous growth. The company has successfully grown its subscriber base over the years, including the addition of 9 million paid members in Q1 to 270 million. It’s precisely this kind of performance that’s given investors confidence in Netflix’s fundamentals and helped the company to lead the content-streaming pack, though competition is heating up.

Netflix operates a subscription-based revenue model, charging members anywhere from $6.99 to $22.99 per month, plus an $8 monthly fee for additional users. Since last year, the company has been cracking down on password sharing, as a result of which subscriber numbers have been rising. Wall Street expects Netflix to continue growing its subscriber base, owing to its robust stable of content. As a result, most analysts are bullish on NFLX stock, with many firms opting to reiterate their “buy” ratings following Q1 results.

Analyst firm Baird has among the most bullish of outlooks after raising its price target on Netflix stock to $700, reflecting 25% upside potential. If the analysts are right, Netflix will surpass its record stock price of $691 reached in 2021.

Similar to how Netflix would like to appeal to a wide range of subscribers, it could also reach more investment portfolios. One way to accomplish this would be through a Netflix stock split so shares appear cheaper and are more approachable to mainstream investors. While it would do nothing to affect the value of the company, including Netflix’s market cap of $241 billion, a stock split could improve investor psychology around the stock. Besides, Netflix stock was trading in the $690 range when the board decided to implement its last stock split nearly a decade ago. As a result, it stands to reason they would revisit this strategy in 2024.

Netflix Content

Netflix has earmarked $17 billion for content this year, most of which is expected to be directed toward original shows to complement its existing programming lineup including shows like “Love Is Blind” and “Irish Wish.” The company is committed to providing a variety of shows and movies to stay ahead.

Meanwhile, rival content streaming companies like Disney (NYSE: DIS) Plus and Paramount Plus strive for profitability. Netflix competitors have learned the hard way they lose subscribers when they stop licensing shows from Netflix’s catalog.

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