Key Points
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Netflix announced a stock split about 10 years after its latest one.
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Though the move doesn’t change the underlying business, it may signal management’s outlook.
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Netflix’s prospects look strong, making the stock attractive right now.
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It’s been a busy year for Netflix (NASDAQ: NFLX). The streaming specialist has been producing strong financial results — as is its habit — and has significantly outperformed the market this year, something else it has gotten investors accustomed to over the years. After all, the stock has provided life-changing returns over the past two decades. However, Netflix did something this year that it had not done since 2015. Let’s see what that is, and whether it makes the stock a buy.
Netflix does this about once every 10.5 years
In 2015, Netflix conducted a 7-for-1 stock split. At the time, the company was riding high as it was gaining significant traction in the still relatively new streaming industry. That wasn’t Netflix’s first stock split, though. In 2004, the company initiated a 2-for-1 stock split. Now, the streaming giant is back at it. Netflix recently announced that it would conduct a 10-for-1 split. Shares will begin trading at the new price on Nov. 17.
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It’s not that surprising that Netflix did it again. Though it hit some turbulence a few years ago — with mounting competition, password-sharing woes, and the brutal end of pandemic-related tailwinds — the company has roared back.
Over the past three years, Netflix’s shares have soared by 285%. Besides, the company apparently seeks to conduct stock splits at somewhat regular intervals. Its first stock split was in December 2004. The second was roughly 10.5 years later, in July 2015.
Roughly another 10.5 years later, it is doing yet another one.
Does the stock split signal a buying opportunity?
Corporations often conduct stock splits in anticipation of the stock price rising even higher. In other words, it’s usually a sign that management has confidence in the business’ medium-term outlook. That’s one of the reasons the move attracts significant attention, even if it doesn’t change the company’s underlying fundamentals. For Netflix, that seems likely to be the case, although some might be skeptical. After all, the streaming landscape has changed significantly since the company last split its stock. But Netflix still reigns supreme.
Other than YouTube — which, strictly speaking, isn’t a comparable platform — Netflix leads streaming services in U.S. television viewing time. The company could see a boost in the next 12 months, thanks to several initiatives.
First, Netflix is still looking to get into live sports, a niche that could help it attract significantly more viewers. Last year, the company achieved major success with its Christmas Day NFL game showings, and it is doing so again this year. Netflix is also preparing to bid for the rights to the UEFA Champions League. While that’s not a big deal in the U.S., it’s the most major annual soccer competition in the world, and its final is one of the most viewed annual sporting events.
Getting the rights to this competition would be a huge deal for Netflix. Besides sporting events, the company has several shows in the works that could also boost subscriber count and engagement. In 2023, Netflix released the first season of the live adaptation of the famous anime One Piece. The show was a huge success and led the platform for the second half of that year. Netflix is gearing up to launch season 2 in March.
Meanwhile, the company is getting ready to release the final season of another one of its most celebrated successes, Stranger Things. These catalysts could work wonders for Netflix over the next 12 months. Netflix continues to demonstrate its ability to create content viewers love to watch, thanks to its access to massive amounts of data on viewer preferences, giving it a strong network effect. The streaming giant is still ramping up its relatively new advertising business — and the company’s data is also a secret weapon that could make that side of its operations highly successful.
Netflix’s shares fell after it reported its third-quarter earnings, but those weren’t as bad as the market made them seem. Revenue grew by a solid 17.2% year over year to $11.5 billion, while earnings per share were up 8.7% year over year to $5.87. The company’s bottom line was hit by a tax expense related to an ongoing dispute with Brazilian authorities, but that shouldn’t affect its financial results much going forward.
Meanwhile, subscriber growth is increasing, free cash flow is on the right track, and the business is looking up despite the recent setback. With all that considered, while Netflix’s stock split isn’t a reason to invest in the company, it might signal exactly what we already see: The company’s prospects look strong. And that is a great reason to invest in Netflix today.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.