Stock splits always generate a healthy buzz around a company. Not only do these events make stocks more liquid and easier to trade, but they usually come on the heels of significant stock price growth. Both of these things are true for Netflix (Nasdaq: NFLX). After rising nearly 800% over the past 10 years, the streaming giant executed a 10-for-1 split on November 17, and shares are now trading at around $106 at the time of this writing.
But while this split makes Netflix stock more accessible to employees and investors who may not have access to fractional shares, it doesn’t change the fundamentals of the company or Market value. Let’s explore the underlying business to decide if Netflix stock is still a compelling long-term investment.
According to 2024 research by data analysis firm Statista, stocks that undergo a split typically outperform the market with an average total return of 25.4% in the 12 months following the split — twice the total return. Standard & Poor’s 500‘s Performance over the same time frame.
However, investors should remember that correlation is not necessarily causation. Stock splits It doesn’t change the company’s fundamentals, and companies that undergo a split may outperform the broad market over the following year because high-performing companies are more likely to split their stock to keep their stock price at a more manageable level.
While the new tech hype cycle of generative artificial intelligence (AI) has taken much of Wall Street’s attention away from Netflix, the movie and video streaming giant still offers plenty to get excited about. Q3 earnings show that the company is still achieving respectable growth.
Sales jumped 17% year over year to $11.51 billion as Netflix achieved its highest quarterly market share in the US and UK. The company continues to roll out new original programming and invest in sports broadcasting with highly anticipated events such as the Canelo-Crawford boxing match, which became the most-watched championship bout of the century. Total Netflix content spending is set to reach $18 billion in 2025, most of which will go to markets outside North America.
But while the business is booming, there are some long-term challenges facing Netflix. For starters, the live streaming industry is more competitive than in previous decades with compelling options from Walt Disney, Amazonand Comcastall of which boast extensive libraries of established intellectual property and content.
Netflix may seek to strengthen its economic moat through strategic acquisitions. The company is said to be among the circle of bidders Warner Bros. Discoverythe industry gem that owns HBO, CNN, and beloved franchises like Harry Potter. While the deal is far from guaranteed (Paramount and Comcast is also seeking an acquisition), which, if all goes as planned, could significantly expand Netflix’s content capabilities while also giving it more exposure to the traditional theatrical side of the film industry.
Some growth-focused investors may shy away from Netflix because of its size. With a market capitalization of $466 billion, it is one of the largest companies on Earth. But the streaming giant still has plenty of room to expand.
While growth in developed markets like the United States will slow, Netflix could generate more revenue from existing customers over time through higher prices and advertising, which some analysts believe could generate $10 billion annually by the end of the decade.
The international market is arguably even more exciting. For example, Netflix has only a 13% market share in India, and the developing country will become an increasingly valuable market over time as wealth in the region grows.
With a price-to-earnings (P/E) multiple of 34, Netflix is trading at a premium S&P 500, which includes multiples 22. But this is a clear case where you get what you pay for, and the stock is still an attractive option to buy.
Before you buy shares in Netflix, consider the following:
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Will Epifong He has no position in any of the stocks mentioned. The Motley Fool has positions at Amazon, Netflix, Walt Disney, and Warner Bros. Discovery and recommend it. The Motley Fool recommends Comcast. The Motley Fool has Disclosure policy.
Will Netflix stock be purchased after a 10-for-1 stock split? Originally published by The Motley Fool
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