Stock splits garner a lot of attention from individual investors. While they do not have an impact on the stock's underlying business, they can draw more attention to the company. Many of the "Magnificent Seven" stocks have split their shares during the past few years, including the likes of Tesla, Apple, and Amazon, as these companies become larger parts of the world economy.
One technology stock that has been suspiciously absent from the stock split game is Netflix (NFLX +1.35%). The video entertainment giant last split its stock in 2015. With the shares approaching $1,200, it is just about time for Netflix to split its stock once again in 2025. But does that make it a buy for your portfolio? Let's run the numbers and find out.
NASDAQ: NFLX
Key Data Points
Netflix's steady growth
Consistent growth has been the name of the game for Netflix despite a wild macroeconomic backdrop during the past five years. Revenue has climbed to more than $40 billion during the past 12 months compared to less than $10 billion 10 years ago. Operating income has ballooned from roughly breakeven to more than $11 billion as the company further extends its lead in streaming video around the world.
At the end of 2024, Netflix had more than 300 million global paid streaming memberships. This may seem like a lot, but there is plenty of room for streaming video to disrupt linear video in the years to come. For example, Netflix shared that about half of TV viewing in the U.K. still comes from legacy providers. Over the long term, many of these viewers will transition to video streaming, providing a long-term tailwind for Netflix even at its immense size.
Netflix's stock is up more than 1,000% during the past 10 years. A big reason for these gains is the company's operating leverage and pricing power. Operating margin has widened to 28% during the past 12 months, making Netflix one of the most profitable businesses in the world.
Image source: Getty Images.
Expanding into advertising and sports
There is still a lot of room for Netflix to expand, especially outside of the U.S. In Asia, the company had fewer than 60 million subscribers at the end of 2024, providing plenty of room to gain market share on the continent with billions of potential subscribers.
In its more mature markets, Netflix is aiming to increase revenue by adding new content and monetization techniques. It has expanded into live events, such as the Tom Brady Roast, and has dipped its toe into sports content. Christmas Day games for the National Football League were a hit, and the company now has a long-term contract with World Wrestling Entertainment (WWE), which has millions of fans. Sports viewing is a huge part of the video streaming landscape, and Netflix now believes it can capture a piece of this pie.
To monetize sports -- as well as its full library of content -- Netflix has started to offer an advertising tier. At $8 a month in the U.S., people can now access Netflix with advertisements, which only launched a few years back. Reportedly, 40% of new subscribers in the U.S. have the advertising tier, and while we do not know exactly how much in advertising sales the company is making today, there is a huge runway to expand these services, given how much time people spend watching Netflix.
NFLX PE Ratio data by YCharts
The truth about a Netflix stock split
With steady revenue growth and a lofty stock price, I think Netflix will split its stock again in 2025. The last time it did so was in 2015.
However, investors need to understand that this has no bearing on whether Netflix stock is a buy.
Why? Because a stock split does not change anything about Netflix's underlying business or market capitalization. All it would do is separate the Netflix pie into smaller pieces. If you had one share before and there's a 10-for-1 split, those 10 new shares are still going to be worth the same dollar amount. The actual business is not impacted at all.
Today, Netflix has a market cap of about $500 billion, and a price-to-earnings ratio (P/E) of 56. This is not cheap, even for a steady growth stock like Netflix. Regardless of whether Netflix is going to split its stock in 2025, this is an expensive stock that is probably not a buy today. Conversely, it is because Netflix stock has soared and gotten so expensive that the stock is ready to split, meaning a stock-split stock may be an indicator of a bad future investment.
Stay away from Netflix stock for the time being.
