Netflix Stock Split — Will Netflix Split the Stock in 2023?
There was a time when Netflix stock was the best bet for investors in the entertainment sector. From 2011 to 2021, shareholders enjoyed a decade-long bull run in the stock price. In those ten years, the stock price increased by over 2,500%. On 12 November 2021, the stock price reached an all-time high of $682.61, and against the backdrop of rising interest rates and inflation fears around the world, a significant downturn has been in effect ever since.
In less than six months, the price dropped 72% from its high. While Alphabet, Tesla, and Amazon have all declared plans to resume forward stock splits in an effort to entice investors, Netflix has made no such announcement. This essay will investigate the history of stock splits and the prospects for future splits.
Netflix Stock Split History
In May of 2002, Netflix presented an Initial Public Offering. There have been two share splits since then, in 2004 and 2015. Two-to-one was the initial split ratio in 2004. For the next 11 years, Netflix did not announce a stock split. After the stock price reached $700 in 2015, management finally decided to split the shares 7 times. Shares of Netflix closed at $681.17 on the day of the announcement in 2015, before the split was implemented. The action, which dropped the price of a share down to roughly $100, was taken to make investing in the company more accessible to smaller investors.
Each stockholder got an extra share in 2004 and six more in 2015 as a result of the stock split. Netflix’s share price has increased from $100 in the aftermath of the 2015 split to $700 in November 2021, but the company has given no hint that another stock split is imminent.
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Will Netflix Split the Stock in 2023?
The year 2022 was one of the worst for Netflix, as the share price dropped by more than 50 percent. The price dropped to $174 on July 12th, 2022, and now it’s higher than $300, a 141% increase. The question that really matters is whether or not management will declare a stock split in 2023. When planning a stock split, a number of variables must be taken into account.
- Requirement for an increase in the number of authorized shares outstanding- The best indicator of an impending stock split is voting for an increase in the number of authorized shares outstanding. For example, in 2015, Netflix requested an increase in share count from shareholders in order to carry out a 7:1 stock split because the prior number of shares was insufficient. However, the permitted shares are approximately five billion, whereas the shares outstanding are just 442 million. In summary, Netflix can carry out a 10 for 1 stock split without seeking approval. In all likelihood, the corporation will not carry out a larger split than that.
- Employees’ compensation – A stronger reason for Netflix Inc to split the stock would be to make employee stock options more accessible. Employees of Netflix pay 40% of the face value for at-the-money options with a 10-year expiration date. It is an excellent technique for staff motivation, and Netflix must maintain the share price low in order to exploit this option more successfully. Netflix employees do not receive fractional options, and at the present share price, each option costs approximately $200, making it appear prohibitive for junior-level staff. A stock split will lower the cost of the share for ordinary investors while also increasing the cost of Netflix options for staff.
Is Netflix a Good Investment?
The stock of Netflix Inc. has its advantages and disadvantages, just like any other stock. While it did shake up the entertainment industry when it first came out a decade ago, much has changed in that time, and since the Pandemic of 2020, competition has been heating up every year.
Netflix’s accounting standards are the stock’s biggest drawback. Over time, the business records the cost of content creation (for most TV shows and movies, it is four years). As a result, measurements like net income and earnings per share (EPS) will be artificially inflated. Expenses, however, result in a more rapid cash outflow, creating a discrepancy between net income and free cash flow, the latter of which is a better indicator of Netflix’s health. The current quarter’s revenue is expected to increase by only 1%, and earnings per share are predicted to be $0.36, down substantially from $1.33 in the same period a year ago.
However, there are some positive aspects of Netflix as well. Recent analyst upgrades came in at a whopping two, so that says something. It is believed by analysts that Netflix’s moat is wide and deep, making it tough for competitors to enter the market. Subscriptions are expected to continue rising in the near future thanks to the introduction of an ad-supported tier and a crackdown on account sharing. Customers can save 30% by upgrading to the ad-supported tier, making it a more appealing option for families trying to cut costs on subscription services.
It is also important to note that Netflix’s rivals in the streaming service industry are all losing money. Disney’s streaming business, for instance, lost $4 billion in its first year of operation. Netflix, on the other hand, reported $5.7 billion in operating earnings during the same time frame. In addition, Disney is making a lot less money than Netflix is. Even though Hulu has been around for a while, it only makes 75% as much money per user as Netflix does in the United States. Netflix, on the other hand, lacks both the vertical integration and the variety of Disney’s amusement parks.
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Will the Netflix Stock Split Affect the Price of Netflix?
When Netflix announced a loss of 200,000 subscribers in the first quarter of 2022, the news sent shockwaves through the stock market. The announcement was responsible for a 68% drop in share price between January and April. It recorded the same number for the second quarter and a slight decrease of 1 million for the third quarter.
The combination of all this news and the general state of the economy has resulted in a 50% drop in share price by 2022. Nonetheless, we can anticipate shifts in the year 2023. Adding a free, ad-supported tier should stop the bleeding of subscribers.
Netflix could consider a share split as one of the drivers for a short bull run in the company. Only twice in the past 18 years have the shares been split, thus management may want to consider a forward stock split for the benefit of both shareholders and staff.
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