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 US company’s stock price has fallen dramatically since its peak last November, but some Wall Street analysts are expecting a correction.
If that happens and the price starts accelerating, could Netflix’s management team consider splitting the stock again?
In our Netflix stock price analysis, we look at whether another Netflix stock split is likely and what impact it could have on the business over the longer term.
What is a stock split?
The best definition of a stock split is when a company chooses to split existing high value shares into a larger number of lower value shares.
Senior executives may choose to go this route for a number of reasons. For example, it can make owning a share of the company more affordable for retail investors.
It may also be more convenient from an administrative point of view if management wishes to reward staff with stock options.
From an existing investor’s perspective, the key is that their overall share of the company will remain the same after the split. The difference is that it will be divided into several units.
It’s also unclear what will happen to the stock price after a split. This will be largely influenced by general market movements, although demand may increase.
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What is Netflix?
Netflix is a pioneer of subscription video on demand and today has more than 200 million subscribers worldwide. Its services are used in 190 countries.
Members pay a monthly fee to access a wide variety of movies, TV series, documentaries and mobile games that play on internet-connected devices.
In recent years, it has started producing its own original programs and plans to test an ad-supported level to attract potential customers who don’t want to pay full price.
The company, based in Los Gatos, Calif., started life in 1997 as a DVD-by-mail rental business. It went online the following year.
Netflix went public in 2002 at a price of $1 per share. It is currently trading under the symbol NFLX. A Netflix stock split has happened twice in the past.
It is currently the third largest entertainment company by market capitalization. Its $106 billion valuation places it behind Walt Disney (DIS) and Comcast (CMCSA).
Netflix Stock Split History
So what is Netflix’s stock split history? The company has so far split its shares twice.
Reed Hastings, Founder and CEO of netflixsaid at the time, “Our fourth quarter performance and the announced stock split reflect the strong, organic and sustained growth of the Netflix model.”
Netflix’s second stock split was announced in June 2015, when the board approved a seven-to-one split.
This took the form of a stock dividend of six additional common shares for each common share outstanding.
Netflix stock: how did it do?
When it comes to Netflix stock price, there have been ups and downs for investors over the past few years.
The longer-term picture looks healthy, with Netflix having made returns of 37.92% over the past 10 years, according to the morning star. This is more than four times the industry average of 9.11%.
NFLX stock price has also risen nearly 19% over the past five years, rising from $199.49 to $236.73 at market close on October 5, 2022.
The stock’s highest closing price was $691.69 on November 17, 2021, according to MacroTrends.
However, life has not been good for investors since then. Year-to-date, NFLX stock has lost 60%. In early January 2022, the price was $597.37. As of October 6, 2022, it was $236.25, data from invest.com shows.
The main reason for the drop was the drop in the number of subscribers. In his second quarter results, the company admitted to losing nearly a million subscribers since the previous quarter. However, he predicts that this fall will be reversed by the third quarter of 2022.
Netflix Stock Split: Analyst Opinion
A Netflix stock split analysis should consider the current opinions of stock analysts. Do they believe it’s likely we’ll see another split of the stock?
According to Danni Hewson, financial analyst at AJ Bell, a possible third division of NFLX shares would not be out of the question.
However, it’s unclear if this potential path will be chosen or when Netflix’s stock split would be if the board decides it’s in the best interest of the company.
“Netflix’s stock price could support a new stock split, but not in the order of the 7:1 split it handed out last time,” she told Capital.com.
Hewson pointed out that it’s a well-known brand and “has a bit of a shine about it” that appeals to retail investors.
“Making it more affordable would open up its pool of potential investors and make it more likely for its employees to invest in the company they work for,” she added.
However, it’s not a move she expects in the immediate future:
“Going down this path now would signal that it has lost faith in its plans to introduce advertising options on its platform, plans that are gaining traction with investors, even though there are still plenty of Caution with traditional growth companies.”
Neil Macker, senior equity analyst at Morningstar, highlighted how the company has used its size to build a massive data set that tracks every customer interaction.
“It then leverages that customer data to better buy content as well as fund and produce original material like ‘stranger things‘,” he said.
However, he identified a few potential problems. These include new competing options launched in the past five years, which means that consumers can have access to multiple services.
“A potential problem for these platforms is the ability for consumers to switch between services with minimal friction. We believe this usage pattern and increased competition will limit Netflix’s ability to raise prices without inducing greater churn.
Macker pointed out that Netflix will test an ad-supported tier in Q4 2022, through 2023, to capture potential subscribers who don’t want to pay the ad-free price.
“While the potential audience may be large, particularly in emerging markets, management will need to ensure that the low-cost tier does not cannibalize the full-price subscriber base in more saturated markets like the United States. United,” he said.
More broadly, Macker expects Netflix to expand more into local-language programming to boost its offering in many countries, which could trigger a response from rivals.
“Netflix’s expansion outside of the US could continue to weigh on margins due to different tastes and lower prices,” he added. “While Netflix has had some success using its non-US content in other markets, much of the local language content is unlikely to travel as well.”
Analyst Views on NFLX Price: What’s Next for the Stock?
NFLX is classified as a “hold”, according to the opinions of 39 analysts polled by market beat. A total of 20 rate the stock as ‘hold’, 13 as ‘buy’ and 6 as ‘sell’.
Their consensus view is that Netflix stock price could rise nearly 25% to $295.87 in 12 months. The highest predictions suggested it could even reach $730. The most pessimistic have hinted that it could fall to $157.
Meanwhile, the average price target among 31 Wall Street analysts compiled by TipRanks stood at $245.85, with the highest 12-month stock forecast at $365 issued by BMO Capital’s Daniel Salmon three months ago.
Remember that analysts can and do make mistakes in their forecasts. 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.
Why has Netflix stock fallen so much?
Netflix said in its second-quarter results that it had lost nearly a million subscribers since the previous quarter as customers grappled with rising costs of living.
Did Netflix do a stock split?
Netflix hasn’t split its stock recently – the last time the company split its stock was in 2015. Historically, Netflix has split its stock twice. The first was a two-to-one split in January 2004, while a seven-to-one split followed 11 years later in June 2015.
How many stock splits has Netflix had?
The action has been split twice – in 2004 and 2015. The first was a two-to-one split, while the second was a seven-to-one split.