When a company announces a forward stock split, it's usually because the stock has gone on a big run and now trades at a high share price to the point where management wants to make an adjustment so the stock feels more attainable.
This is clearly the case with streaming giant Netflix (NFLX +0.26%), which recently announced a 10-for-1 stock split, with management saying it wants to make the stock more "accessible to employees who participate in the Company's stock option program." With the stock trading around $1,132 per share, the split will also make the stock feel more attainable for retail investors.
Netflix's stock has enjoyed a strong year. The $476 billion market cap company is up nearly 28% this year (as of Nov. 11) and Wall Street still thinks there is room to run.
Image source: Netflix.
Why Netflix has done well
For starters, Netflix's business model is pretty resilient when it comes to President Donald Trump's tariffs. The company is in the business of making and selling content, so there are only a few physical products (mostly promotional products, where the licensed manufacturer likely handles most of the tariff costs) for the company to ship into the U.S., although Trump has threatened to impose significant tariffs on movies made outside the U.S.
From an operational standpoint, Netflix has demonstrated that it is best in class when it comes to making content. Popular franchises like Ozark and Stranger Things, as well as the company's foray into reality TV and live events, have attracted over 300 million subscribers. Despite the company's size, it continued to defy the odds by adding 19 million subscribers in the fourth quarter of 2024, the last time the company reported subscribers.
Netflix also continues to demonstrate strong pricing power, with its top-tier premium subscription charging roughly $25 per month. Furthermore, Netflix has demonstrated the ability to generate new revenue streams through its ad-supported tiers and gaming. Netflix grew revenue 17% year over year in the third quarter, thanks to contributions from subscriber growth, pricing adjustments, and increased ad revenue.
The party can continue
Despite strong performance from the stock, most Wall Street analysts think Netflix's stock can continue to climb over the next 12 months. Of the 34 analysts who have issued a research report on the company in the past three months, 26 have a buy rating on the stock, seven say hold, and one analyst has a sell rating, according to TipRanks. The average price target implies about 23% upside, while the highest price target of $1,600 per share implies 41% upside.
Pivotal Research Group analyst Jeffrey Wlodarczak issued the $1,600 price target, initially back in June. "Our positive Netflix investment view remains unchanged. ... Netflix remains underpenetrated globally, offers an extremely compelling price-to-entertainment value (that is continually improving) boosted by their ad-supported offering," Wlodarczak wrote in a research note at the time.
NASDAQ: NFLX
Key Data Points
Currently trading at close to 45 times forward earnings, I wouldn't necessarily call Netflix cheap, but I do think the stock is in a sort of sweet spot right now at a time when artificial intelligence (AI) is sucking up so much oxygen. There is certainly an AI component to Netflix, but the company is already at the top of the proven streaming sector, and one could make the argument that content is more important than ever before.
The streaming space is competitive, and I do expect there to be consolidation because it's becoming difficult for the average person to afford so many different streaming subscriptions that seemingly get more and more expensive. But I have no doubt that Netflix will survive and rise to the top, which is why I think investors can buy and hold this stock-split stock long-term.
