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Netflix Inc. Stock Split: It's No Big Deal

By Rick Munarriz – Jun 25, 2015 at 11:05AM

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The leading premium video service declared a 7-for-1 stock split, but it's not a newsworthy event.

The market finally got the inevitable stock split announcement out of Netflix (NFLX 1.09%) on Tuesday night, and the stock inexplicably went bananas the next day.

Netflix shares opened at an all-time high of $700.50 on Wednesday morning, with investors apparently somehow surprised that the leading video service had declared a 7-for-1 stock split that will go into effect next month.

Netflix is at the top of its game. It should be hitting new highs. We're talking about a platform that had amassed nearly 62.3 million subscribers by the end of March, serving more than 3 billion hours of content a month. That's not shabby for a premium online service that didn't even exist eight years ago. However, all of the bullish buzz over a stock split announcement is just nuts.

This was never in doubt, folks. Netflix filed a preliminary proxy statement in mid-April, announcing that shareholders would vote in early June on expanding its reserve of capital stock from 160 million shares to 5 billion shares. This is often a prelude to a stock split.

Just in case that wasn't clear -- or the market wasn't interesting in rifling through an SEC filing -- Netflix's quarterly report that followed shortly after that was even more explicit.

"We are seeking shareholder approval for an increase in our authorized shares," read the quarterly letter to shareholders. "If approved, we expect to recommend to our Board a stock split to make our stock more accessible."

The final event to set the stock split in motion was the June 9 shareholder meeting where the expansion of Netflix's authorized share count was approved by the dot-com darling's investors. 

Boom. Call off The Mystery Machine van. The case was solved and cracked weeks ago. The only thing that was in doubt was the actual timing of the stock split and how far Netflix was willing to go to make its stock "more accessible," which is a pretty silly notion these days when it's easier and cheaper than ever to buy stocks in small odd lots. 

There's probably some poetic justice in the stock opening north of $700 on a 7-for-1 stock split declaration, implying that the stock will remain in the triple digits. 

Stock splits have always been zero-sum events. Financially and mathematically speaking, replacing every share of Netflix next month with seven shares priced at a seventh of the price balances everything out. Some can always argue that a company declaring a stock split is a show of confidence since it's willing to go with a lower price that can get rocked on the next sell-off, but I'm not sure if that necessarily applies to a stock where the post-split price will be about $100.

Netflix hitting a new high makes sense, but doing so on the heels of an announcement that it's been telegraphing for more than two months does not. 

Rick Munarriz owns shares of Netflix. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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