As Wall Street focuses on the tech earnings season, streaming giant Netflix Inc. (NASDAQ: NFLX) is approaching a key corporate decision that could fuel investor optimism: a potential stock split. With its share price firmly above $1,200, speculation is mounting that the company may announce its first split in nearly a decade when it reports third-quarter results on October 21.
A stock split, while not altering a company’s fundamental market value, is often viewed as a significant market milestone. It signals management’s confidence in future growth and lowers the per-share price, making the stock more accessible to a broader base of retail investors.
The move appears well-timed. Netflix’s current stock price is among the highest in the S&P 500 index. The company has a history of splits, having executed a 2-for-1 split in 2004 and a 7-for-1 split in 2015. The current share price far exceeds the levels preceding those splits.
Beyond improving accessibility, a split could offer Netflix another potential benefit: meeting the share price criterion for inclusion in the Dow Jones Industrial Average. With a market capitalization of approximately $500 billion, Netflix surpasses many current Dow components. Furthermore, the entertainment sector is currently underrepresented in the blue-chip index, with Walt Disney Co. as its sole representative.
Historical data suggests a positive trend for stocks following a split. A Bank of America study tracing back four decades found that companies that split their shares delivered an average return of 25.4% in the following year, significantly outperforming the S&P 500’s 11.9% gain. Analysts note that this outperformance is likely linked to companies typically executing splits during periods of strong performance and market optimism, rather than being a direct cause of the price increase.
Netflix’s stellar performance provides a solid backdrop for such a decision. Its shares have surged 400% over the past three years, outpacing some members of the famed “tech megacaps.” This rally is underpinned by the successful rollout of its advertising-supported tier, the crackdown on password sharing, and its push into live content.
The ad-supported plan has not only created a new revenue stream but also provides leverage to increase prices for its ad-free packages. For the third quarter, Netflix is projected to report a 17% year-over-year revenue increase to $11.5 billion, with earnings per share expected to rise to $6.94 from $5.40.Despite a premium valuation with a price-to-earnings ratio around 50, the company’s dominant position in global video streaming, coupled with its evolving advertising business and localized content strategy, continues to bolster its long-term growth narrative.
If Netflix proceeds with a stock split announcement, it could serve as a fresh catalyst, potentially igniting the next leg of its market rally.
