Forecast: The Most-Awaited Stock Split of the Fourth Quarter Is Set to Be Revealed This Month

Netflix’s Stock Price Surpasses $1,000: Is a Split on the Horizon?

While stock splits don’t fundamentally change a company’s value, they often serve to excite investors and grab headlines.

To start, stock splits are generally seen as milestones in a company’s performance. They suggest that management believes in the potential for future growth, allowing them to lower the stock’s price while potentially boosting its overall market value. Interestingly, data shows that stocks often perform better after a split.

A survey from Bank of America highlights this point: over the past 40 years, stocks that split have seen an average increase of 25.4%, which significantly outpaces the S&P 500’s 11.9% increase during the same period.

This observed pattern could indicate correlation rather than direct causation. After all, companies typically choose to split their stock when they anticipate continued price growth. Additionally, splits tend to happen more frequently in bull markets rather than during downturns.

Given how retail investors usually benefit from lower stock prices, it’s easy to see why splits generate so much buzz.

One company that may be eyeing a split is Netflix (NFLX), a major player in the streaming industry. After bouncing back from a slump in the broader entertainment sector, Netflix has shown impressive returns over the past few years.

Currently, Netflix’s stock price is around $1,200, making it one of the more expensive stocks available. The company is set to report its fourth-quarter results on October 21, which could be an opportune moment for announcing a stock split.

Netflix’s Stock Split History

Netflix’s remarkable 400% growth over the last three years seems well-timed. Factors such as ad-supported tiers and live events have resonated with audiences, contributing to the increase in revenue.

The advertising model, in particular, has opened new avenues for growth without necessarily needing more subscribers or price hikes. Netflix has also introduced lower-cost, ad-driven subscriptions, which allows it to maintain higher pricing on premium plans.

Historically, Netflix has not shied away from stock splits. In 2015, the company executed a 7-for-1 split and a 2-for-1 split back in 2004, when its stock price was significantly lower than today.

There’s another, perhaps less obvious, reason why Netflix could benefit from a split. If its stock price were to decrease, it may find inclusion in the Dow Jones Industrial Average. With a market cap of $500 billion, Netflix significantly surpasses many companies within that index, yet its industry, entertainment, is often overlooked in blue-chip categories.

Is Netflix a Good Investment?

Even though Netflix isn’t part of the so-called Magnificent Seven, it has outperformed several notable tech stocks lately, following a trend where many have opted for stock splits.

When Netflix releases its third-quarter results on October 21, analysts anticipate a 17% year-over-year increase in sales, projecting $11.5 billion. Earnings per share are expected to jump from $5.40 to $6.94.

While the stock may seem pricey at 50 times its earnings, it continues to dominate the global video entertainment market and has ample room for growth, especially with its advertising initiatives and localized content strategies.