Investing
Netflix Wows Wall Street as Subscribers Double. Can a Stock Split Be Far Behind?
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Streaming giant Netflix (NASDAQ:NLFX) trounced Wall Street expectations with a fourth quarter earnings report that excelled across the board. Sales, profits, and subscriber numbers all surged year-over-year and sequentially as new programming and sports offering drew in record views.
With the stock soaring 15% before the market opens and poised to cross the $1,000 per share price threshold, investors are right to wonder whether NFLX stock is about to split.
24/7 Wall St. Insights:
- Netflix (NFLX) reported strong fourth-quarter results that handily beat Wall Street estimates.
- The streamer is firing on all cylinders across programming, making it attractive to advertisers.
- NFLX stock is at almost $1,000 per share, which makes it a prime candidate for a stock split.
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Firing on all cylinders
It’s been 10 years since Netflix split its shares last. At the time, NFLX stock went for $700 a share and it split them 7-for-1. The only other split was in 2004 when the stock traded hands at just $72 a stub. It split them 2-for-1.
At this new psychologically important price point, a split makes sense. Netflix is drawing in more viewers. In the fourth quarter, 18.9 million new additions were added to the subscriber rolls, double what analysts were expecting and 44% more than last year. It was also the most new subscribers added in Netflix history.
Revenue jumped 16% to $10.2 billion, just surpassing consensus forecasts of $10.19 billion while profits doubled to $4.27 per share, beating analyst predictions by $0.07.
The board also authorized a $15 billion stock buyback program on top of the remaining $2.1 billion from the prior authorization.
Over the past decade, Netflix has generated annual returns of 34% versus 13% for the S&P 500. Since its IPO in 2002, its cumulative returns exceed $83,000 (in comparison, the benchmark index has returned 737%). That means $10,000 invested back then would be worth more than $8.3 million today.
To make its stock more accessible to investors wanting to ride with Netflix for the next 23 years and beyond, a stock split makes sense.
A programming juggernaut
There is ample reason to believe the streaming giant can continue on its current trajectory in the future.
Netflix has found the magic programming formula and is producing must-watch TV. Squid Game 2 is on track to become one of its most-watched original series seasons while the movie Carry-On quickly joined the list of all-time top 10 films.
Other superlatives are in its sports offerings with its NFL Christmas Day games becoming the most-streamed NFL games in history while the Mike Tyson-Jake Paul boxing match was the most-streamed sporting event ever.
Live events like the boxing match represent a substantial growth opportunity going forward for Netflix, as do video games. Not only is it gaining traction with games based on its own content, like Squid Game: Unleashed and other properties, but also third-party titles such as Grand Theft Auto are ripe for expansion. Netflix says it drives tens of millions of downloads of the game.
Advertisers are flocking to the platform
These kind of record-setting events and opportunities make Netflix a go-to destination for advertisers. Previously the streamer said it was only capturing about 6% of a $650 billion opportunity. While it doesn’t release its ad revenue numbers as it says they are not material yet, it reported they doubled in the fourth quarter, doubled for the full year from last year, and are expected to double again in 2025.
It has moved all of its programmatic ad services in-house giving it greater control over placement. Particularly as its ad-supported subscriber tier grows, advertising should become a material source of revenue.
Importantly, Netflix ad-tier represented 55% of all signups. It now feels it is providing good value to subscribers for the cost, so it will be increasing subscription prices, including on its ad-supported plans. It’s been several years since it raised them last.
Worth the cost
Netflix trades at 29 times next year’s earnings estimates, a not unreasonable premium for a stock that is far and away the industry leader. Wall Street forecasts Netflix will grow earnings at 25% a year for the next five years and it trades at less than twice those estimates.
It still makes NFLX stock attractive, but at almost $1,000 a share it may be prohibitively expensive for many investors. A stock split could put it in reach of many of its new subscribers.
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