Netflix stock split: Will NFLX share price support a third expansion?
Streaming giant Netflix (NFLX) has split its stock twice - could a third split be on the cards if its value recovers in the coming year?
The NFLX stock price has fallen dramatically since its high last November, but some Wall Street analysts are expecting a correction.
If this happens and the price starts to gather momentum, could the Netflix management team consider dividing the stock once again?
In our Netflix stock price analysis, we explore whether another Netflix stock split is likely and what impact this could have on the company over the longer term.
What is a stock split?
The best definition of a stock split is when a company chooses to divide existing high-value shares into a larger number of shares of lower value.
Senior executives can choose to go down this road for a number of reasons. For example, it can make owning a share of the company more affordable for retail investors.
It can also be more practical from an administrative standpoint should the management wish to reward staff with share options.
From an existing investor’s standpoint, the key is that their overall share of the company will remain the same after the split takes place. The difference is it will be divided into more units.
It’s also not clear what will happen to the stock price after a split. This will largely be influenced by general market movements, even though demand may increase.
What is your sentiment on NFLX?
What is Netflix?
Netflix is a pioneer in subscription video-on-demand and now boasts more than 200 million subscribers around the world. Its services are used in 190 countries.
Members pay a monthly fee to access a wide variety of films, TV series, documentaries and mobile games that are played on devices connected to the internet.
In recent years, it has started producing its own original programmes and has plans to trial an ad-supported tier to lure potential customers unwilling to pay the full price.
The company, which is based in Los Gatos, California, started life back in 1997 as a postal DVD rental business. It went online the following year.
Netflix went public back in 2002 at a price of $1-a-share. It currently trades under the NFLX ticker. A Netflix stock split has taken place twice in the past.
It’s currently the third largest entertainment company by market capitalisation. Its $106bn valuation puts it behind Walt Disney (DIS) and Comcast (CMCSA).
Netflix stock split history
So, what is the Netflix stock split history? The company has so far split its stock twice.
The first NFLX stock split was announced back in January 2004. The two-for-one split gave existing Netflix stockholders an additional share for each they owned on the record date of 2 February 2004.
Reed Hastings, founder and CEO of Netflix, declared at the time: “Our Q4 performance and the announced stock split reflect the strong, organic and sustained growth of the Netflix model.”
The second Netflix stock split was announced in June 2015, when the Board approved a seven-for-one division.
This took the form of a stock dividend of six additional shares of common stock for each outstanding share of common stock.
Netflix stock: How has it performed?
As far as the Netflix stock price is concerned, there have been highs and lows for investors over the last few years.
The longer term picture looks healthy, with Netflix having achieved trailing returns of 37.92% over the last 10 years, according to Morningstar. This is more than four times the industry average of 9.11%.
The NFLX stock price has also risen almost 19% over the past five years, from $199.49 to $236.73 at market close on 5 October 2022.
The highest closing price for the stock was $691.69, which came on 17 November 2021, according to MacroTrends.
However, life hasn’t been great for investors since then. Year-to-date, NFLX stock has lost an eye-watering 60%. In early January 2022, the price was $597.37. By 6 October 2022, it was $236.25, data from Investing.com shows.
The main reason for the fall has been the drop in subscriber numbers. In its second-quarter results, the company admitted it had lost almost a million subscribers since the previous quarter. However, it predicted this fall will be reversed by Q3 2022.
Netflix stock split: Analyst views
A Netflix stock split analysis needs to consider the current views of stock market analysts. Do they believe it’s likely that we’ll see another division of the stock?
According to Danni Hewson, financial analyst at AJ Bell, an eventual third NFLX stock split wouldn’t be out of the question.
However, it’s not certain if this potential route will be chosen or what the Netflix stock split date would be if the Board decided it was in the company’s best interests.
“The Netflix stock price could support a further stock split but not in the order of the 7:1 split it dished out last time,” she told Capital.com.
Hewson pointed out it was a well-known brand and “has a bit of gloss about it” that appeals to retail investors.
“Making it more affordable would open up its potential investor pool and give its employees more chances to buy into the company they work for,” she added.
However, it’s not a move that she expects in the immediate future:
Neil Macker, senior equity analyst at Morningstar, highlighted how the firm has used its scale to construct a massive data set that tracks every customer interaction.
“It then leverages this customer data to better purchase content as well as finance and produce original material such as ‘Stranger Things’,” he said.
However, he identified some potential problems. These include new rival options having been launched over the last five years, meaning consumers can have access to multiple services.
Macker said:
Macker pointed out that Netflix will trial an ad-supported tier in fourth-quarter 2022, going into 2023, to capture potential subscribers that are unwilling to pay the ad-free price.
“While the potential audience could be large, particularly in emerging markets, management will need to ensure that the lower-priced tier doesn’t cannibalize the full-price subscriber base in more saturated markets like the US,” he said.
More broadly, Macker expects Netflix will expand more into local-language programming to augment its offering in many countries, which could trigger a response from rivals.
“Netflix's expansion outside the US could continue to drag on margins because of different tastes and lower pricing,” he added. “While Netflix has experienced some success in using its non-US content in other markets, much of the local language content will likely not travel as well.”
Analyst views on NFLX price: Where next for the stock?
NFLX is rated as a ‘hold’, according to the views of 39 analysts surveyed by MarketBeat. In all, 20 rate the stock a ‘hold’, 13 a ‘buy’ and six a ‘sell’.
Their consensus view is that the Netflix stock price could rise almost 25% to $295.87 in 12 months’ time. The highest predictions suggested it could even reach $730. The more pessimistic suggested that it could fall to $157.
Meanwhile, the average price target among the 31 Wall Street analysts compiled by TipRanks stood at $245.85, with the highest 12-month stock forecast coming in at $365, issued by BMO Capital’s Daniel Salmon three months ago.
Remember that analysts can and do get their forecasts wrong. Always do your own research before making an investment or trading decision.
Past performance does not guarantee future results. And never invest or trade more than you can afford to lose.
FAQs
Why did Netflix stock drop so much?
Netflix announced in its second-quarter results that it had lost almost a million subscribers since the previous quarter as customers struggled with rising living costs.
Did Netflix have a stock split?
Netflix has not split its stock recently – the last time the company divided its shares was in 2015. Historically, Netflix has split its stock twice. The first was a two-for-one split in January 2004, while a seven-for-one split followed 11 years later, in June 2015.
How many stock splits did Netflix have?
The stock has been split twice – in 2004 and 2015. The first was a two-for-one split, while the second was a seven-for-one division.
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