Netflix Stock Split and Recent Performance

The shares of Netflix will commence trading on a split-adjusted basis starting November 17th. Interestingly, the company has experienced a notable acceleration in revenue growth in recent quarters. One noteworthy metric for evaluation is the perspective it provides on a stock’s overall valuation.

Since its last stock split back in 2015, Netflix has seen its stock climb significantly, driven by impressive business growth and increasing investor confidence in its long-term potential. This optimistic outlook has made the stock quite popular on Wall Street, with shares surpassing $1,000. In line with this momentum, Netflix recently declared a 10-for-1 stock split.

The split aims to make shares more accessible for employees involved in the stock option program, among other reasons. This moment is quite critical for both the stock and its shareholders, especially after the recent fluctuations investors have faced. At one point in 2022, shares dipped below $200, which, looking at today’s prices, seems almost unbelievable.

As the stock is set to begin trading post-split tomorrow, it might be a good time to watch its performance closely. Will you consider purchasing some shares after the split?

In Netflix’s third quarter, revenue jumped 17.2% year-over-year, boosted by a mix of price increases, membership growth, and rising advertising revenue—this marks an increase from 15.9% growth in the prior quarter and surpassed the company’s growth outlook for 2024. The management anticipates a 17% rise in the fourth quarter as well, hinting that this upward trend may continue.

The advertising segment plays a crucial role in Netflix’s growth narrative. Although this part of the business is relatively new—established less than three years ago and still smaller than the subscription side—it’s expanding quickly. Management expressed increasing confidence in this area, projecting ad revenue to more than double by 2025.

This aspect is particularly significant because it allows Netflix to diversify its revenue sources beyond just gaining new subscribers or implementing rate hikes. Additionally, it’s worth noting that the profit margins in advertising can be quite appealing, potentially leading to significant long-term profitability.

Before the advertising division even gained prominence, Netflix’s core business was driving an increase in operating margins, which stood at 27% for 2024, a rise from 16% in the previous year. The expectation is for margins to further enhance to 29% in 2025.

Now, while the stock split itself doesn’t alter the company’s actual value, it merely splits one share into ten, maintaining total value. So, investors shouldn’t buy solely based on that; it’s more of an optical change. However, given the stock’s strong upward trajectory over the past few years, it’s a moment worth watching. But, is the stock price still attractive?

Currently, Netflix has a price-to-earnings ratio exceeding 47. While that may look steep, it is important to factor in the company’s solid double-digit revenue growth and operating margins, which are expected to support robust earnings growth next year. A forward P/E ratio of 35 is arguably more reasonable and even appealing, especially considering its market dominance and growth trends. Plus, the advertising side of the business could unlock further revenue potential in the next several years.

So, is Netflix a good investment post-split? I think it could be. Yet, every investment carries risks, especially with fierce competition from well-funded technology firms eager to invest heavily in content. This is why I prefer to keep my holdings in these stocks quite modest. Those considering buying into Netflix should monitor the competitive landscape in streaming closely, as changes could affect their investment strategy.

Before deciding to purchase, investors should weigh these insights seriously.

Interestingly, a recent analysis from a reputable source suggests there are ten stocks deemed better investments at this time than Netflix. These stocks are seen to possess excellent potential for returns in the upcoming years.