Netflix Stock: Should You Buy After the 10-for-1 Split?

When a company announces a stock split, it often generates a lot of excitement among investors and the media. These events not only enhance a stock’s liquidity, making it easier for buyers and sellers to trade, but they typically follow significant growth in the stock’s price. This was evident with Netflix (NFLX 1.45%). After an impressive rally of approximately 800% over the past decade, this streaming powerhouse executed a 10-for-1 stock split on November 17, and as of now, shares are trading around $106.

Although this stock split makes Netflix shares more accessible to both employees and investors who may not wish to invest in fractional shares, it does not alter the company’s underlying fundamentals or its market capitalization. In this analysis, we will delve into Netflix’s core business operations to determine whether Netflix stock remains a compelling choice for long-term investment.

Image source: Netflix.

Understanding the Impact of Stock Splits on Market Sentiment

Recent research conducted by Statista in 2024 indicates that stocks that undergo a split tend to outperform the overall market, typically achieving an average total return of 25.4% over the 12 months following their split. This performance is notably double that of the S&P 500‘s returns during the same period.

However, investors must remain cautious, as correlation does not imply causation. A stock split does not inherently alter a company’s fundamentals. Instead, it is often the case that high-performing companies are more likely to split their stocks, thus making their share prices more manageable and accessible to a wider range of investors.

Today’s Change

(-1.45%) $-1.53

Current Price

$104.14

Key Data Points

Market Cap

$442B

Day’s Range

$103.83 – $106.54

52wk Range

$82.11 – $134.12

Volume

1.7M

Avg Vol

37M

Gross Margin

48.02%

Dividend Yield

N/A

Evaluating Netflix’s Strong Business Fundamentals

Despite the current hype surrounding generative artificial intelligence and its impact on various sectors, Netflix remains a company that continues to generate significant interest and excitement. Recent earnings reports for the third quarter reveal a company that is experiencing robust growth.

Netflix reported a remarkable 17% increase in sales year over year, totaling $11.51 billion, as the company achieved its highest market share in both the U.S. and U.K. The streaming service is actively investing in original programming and sports broadcasting, with major events such as the Canelo vs. Crawford boxing match, which set records as the most-viewed championship fight of the century. Netflix’s overall content expenditure is projected to reach $18 billion by 2025, with a significant portion aimed at expanding in markets outside of North America.

While Netflix thrives in the current landscape, it faces long-term challenges. The streaming industry has become increasingly competitive, with formidable offerings from companies like Walt Disney, Amazon, and Comcast, each boasting extensive libraries of established intellectual properties and content.

To maintain its competitive edge, Netflix may consider strategic acquisitions. The company is reportedly among the potential bidders for Warner Bros. Discovery, a key player in the industry that owns renowned entities such as HBO, CNN, and beloved franchises like Harry Potter. While this acquisition is not guaranteed—given that Paramount and Comcast are also in pursuit—it could significantly enhance Netflix’s content offerings and provide greater access to the traditional theatrical market.

Why Netflix Can Continue to Outperform the Market

Some investors with a focus on growth may hesitate to invest in Netflix due to its substantial size, as the company boasts a market capitalization of $466 billion, ranking it among the largest corporations globally. However, the streaming giant still possesses substantial potential for expansion.

While growth rates in established markets such as the U.S. may begin to plateau, Netflix has the opportunity to drive additional revenue from its existing customer base through strategic price increases and enhanced advertising opportunities. Analysts project that these initiatives could potentially yield up to $10 billion annually by the end of the decade.

The international market presents even greater opportunities for growth. For instance, Netflix currently holds only a 13% market share in India, a developing market that is expected to become increasingly lucrative as regional wealth continues to rise.

With a forward price-to-earnings (P/E) ratio of 34, Netflix shares trade at a premium compared to the S&P 500, which has a P/E ratio of 22. Nevertheless, this scenario exemplifies the idea that in investing, you often get what you pay for, and thus, Netflix shares remain an attractive investment opportunity.