Media-streaming veteran Netflix (NFLX -0.63%) has split its stock twice. The last split was a dramatic 7-for-1 affair in 2015. With share prices heading upward again, Netflix stock is back to a lofty $436 per share. Is it time for another stock split in Los Gatos, California?
A quick history lesson
This wouldn't be Netflix's first stock-splitting rodeo. The company executed a 2-for-1 split on Feb. 12, 2004. A more impactful split followed on July 14, 2015. That time, each Netflix share was split into seven stubs.
The splits didn't change Netflix's market value, of course. Likewise, they didn't affect the value of an investor's shares. A stock split simply redistributes the same market value among a different number of shares. As an example, let's imagine buying 100 Netflix shares just before the first stock split and follow them through the years:
|
Date |
Number of Netflix Shares |
Price per Share |
Total Investment Value |
Gain |
|---|---|---|---|---|
|
2/11/2004 |
100 |
$72 |
$7,200 |
0% |
|
2/12/2004 |
200 |
$37 |
$7,464 |
4% |
|
7/14/2015 |
200 |
$703 |
$140,600 |
1,853% |
|
7/15/2015 |
1,400 |
$98 |
$137,460 |
1,809% |
|
9/12/2023 |
1,400 |
$435 |
$608,860 |
8,356% |
Data gathered from YCharts.com on Sept. 12, 2023.
Why 100 shares? So-called round lots were the style at the time. Even if your brokerage allowed smaller trades, it was just easier to work with multiples of 100 shares in 2004. (Hold that thought -- I'll get back to lot sizes in a minute.)
As you can see, the stock splits boosted the number of shares in your pocket but didn't make a significant difference to the total value of your Netflix investment. The company's market cap was approximately $1.85 billion in the days before and after the 2004 split. It sat near $42 billion around the 2015 split after 11 years of Blockbuster-crushing DVD shipments and online video streaming innovation. The pie was split into a larger number of slices, lowering the price of each stub but leaving the total value untouched.
That's how stock splits work, and the next one won't be any different.
Why another split seems likely now
Netflix never published an official reason for its first two stock splits, but companies that do explain them usually focus on making their stock more attainable for ordinary people. This was more important back in the day, when the smallest investment you could make was 100 shares. These days, most brokerages will gladly let you buy a fractional share. If you only have $100 to invest this month, you could pick up roughly one-fifth of a Netflix share, for example. Things sure have changed on Wall Street.
In that light, the 2-for-1 split that brought Netflix's stock price down from $72 to $37 made sense in 2004 but wouldn't be necessary now. I mean, the 2015 split resulted in a stock price of roughly $100 after the split. Nowadays, stock splits tend to come along when a stock is priced at several hundred dollars. That's where Netflix stands right now, so a quick adjustment would make sense.
Don't hold your breath waiting for a Netflix split, though
It has been eight years since the last split. The company isn't exactly itching to split its stock again. In particular, a split would have looked more reasonable when Netflix shares traded at nearly $700 in the fall of 2021. The retreat to less than $200 in 2022 started with the global inflation crisis and accelerated when Netflix ran into a brick wall of slow subscriber growth. The company runs under a more profit-oriented business model now. The strategy shift is paying dividends, but Netflix's stock price is nowhere near record levels.
So I don't expect a stock split announcement anytime soon. If and when a split comes along, it won't change anything about Netflix's business results, long-term growth opportunities, or market value. Those are the things that influence share prices in the long run, and they're how I will continue to evaluate the company with or without a stock split.
And from that point of view, Netflix is chasing bottom-line profits and renewed sales growth with newfangled tactics such as account-sharing crackdowns, ad-supported subscription plans, and a rapidly growing portfolio of video games. The ongoing strikes among Hollywood's actors and writers may hamstring next year's content releases and slow down Netflix's growth again, but that's just another short-term speed bump. If you can afford a Netflix share today -- or a fraction of a share, if your brokerage allows it -- the stock still looks like an awesome long-term bet on the global video-streaming opportunity.
