Netflix’s Growing Popularity and Potential Stock Split
Netflix has garnered significant attention from individual investors due to its consistent growth and recent stock performance. The company’s stock price has surged to nearly $1,200, sparking speculation about a potential stock split in 2025. Netflix last split its stock in 2015, and with its market capitalization standing at around $500 billion, investors are wondering if this anticipated split makes it a good time to buy.
Steady Growth and Expansion
Despite macroeconomic fluctuations over the past five years, Netflix has maintained steady growth. Revenue has skyrocketed from less than $10 billion to over $40 billion in the past decade. Operating income has also seen a significant boost, rising from near breakeven to more than $11 billion as the company continues to dominate the streaming video market worldwide. By the end of 2024, Netflix boasted over 300 million global paid streaming memberships. Although this number is substantial, there remains considerable room for growth, particularly in regions where linear video still prevails. For instance, about half of TV viewing in the U.K. still relies on traditional providers, indicating a potential long-term tailwind for Netflix.
Netflix’s stock has soared over 1,000% in the past decade, largely due to its operating leverage and pricing power. The company’s operating margin has expanded to 28% over the past 12 months, positioning Netflix as one of the world’s most profitable businesses.
Diversification into Advertising and Sports
There is still significant potential for Netflix to expand, especially in international markets. In Asia alone, the company had fewer than 60 million subscribers at the end of 2024, leaving ample opportunity to capture market share on a continent with billions of potential viewers. To further drive revenue, Netflix has diversified its offerings by venturing into live events, such as the Tom Brady Roast, and exploring sports content. The success of Christmas Day NFL games and a long-term contract with World Wrestling Entertainment (WWE) underscore this strategic move.
To capitalize on its growing viewership, Netflix has introduced an advertising tier priced at $8 per month in the U.S. Since its launch a few years ago, 40% of new U.S. subscribers have opted for this tier. Although the exact advertising revenue figures are not disclosed, this move presents a substantial opportunity for growth.
The Reality of a Netflix Stock Split
While Netflix’s steady revenue growth and high stock price suggest a potential stock split in 2025, it’s crucial for investors to understand that this event has no bearing on the company’s underlying business or market capitalization. A stock split merely divides the existing shares into smaller units without altering the company’s fundamental value. With a current P/E ratio of 56, Netflix stock is considered expensive, even for a growth stock. Therefore, regardless of whether a stock split occurs, the current valuation may deter potential investors.
In conclusion, while Netflix’s growth prospects remain promising, its current stock price and valuation suggest that it may not be an attractive buy at present. The anticipated stock split, while noteworthy, does not change the underlying investment thesis.
