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• Equity split trends in FAANG stocks
• The Netflix share gives strong returns despite the price drop
• Another split coming?
Tesla, Amazon, Alphabet – and Netflix stock splits?
Especially among tech companies whose share prices have risen significantly over time, stock splits may be the preferred method of not leaving out small investors. They make the shares look cheaper by dividing them in a certain ratio. New investors can therefore use lower prices to get started, for investors who already have shares in the company in their portfolio, only the quantity changes, but not the corresponding value on the reporting date. In a two-for-one stock split, investors get an extra share for each existing share, while the share value is halved. Prominent examples of this in recent months have been Tesla, Amazon and Alphabet. But what about another member of the FAANG squad, which consists of Facebook, Amazon, Apple, Netflix and Google?
The Netflix share entices with strong returns despite the price drop
Like the entire tech industry, shares of streaming provider Netflix have recently suffered from elevated interest rates, which are causing the lofty valuations of Internet stocks to falter. Since the beginning of the year, the stock on NASDAQ has already fallen by 55.49 percent to USD 268.16 (closing price October 20, 2022). In the long term, however, the stock is still well ahead: Netflix began trading on the technology exchange in May 2002 with an initial price of 15 US dollars. Over the past decade, investors have been rewarded with an average return of 40.20 percent, according to data from Morningstar. That places the Netflix share well above the industry average of 8.96 percent. Nevertheless: the current price level is far from the record high of 691.69 US dollars, which the stock marked in November 2021.
Previous Netflix stock splits 2004 and 2015
However, stock splits are not a new phenomenon for Netflix: as early as 2004, the streaming giant announced a two-for-one split. “Our performance in the fourth quarter and the announced stock split reflect the strong, organic and sustained growth of the Netflix model,” CEO Reed Hastings said confidently in a press release at the time. “The robust growth will continue in 2004, as will effective investment in the initiatives that will take off in 2005 and beyond.” As of February 2, 2004, existing Netflix shareholders received one share for each share in their portfolio.
The Los Gatos, Calif.-based company then conducted another stock split in 2015 — but this time at a seven-to-one ratio and in the form of a stock dividend. On 14 July 2015, all shareholders who owned shares per July 2, six additional shares.
Is the third stock split coming soon?
So how likely is it that Netflix will do another stock split in the near future – despite the weakened share price? Speaking to Capital.com, AJBell analyst Danni Hewson said the stock could see its price drop further, if not by a seven-to-one ratio. But the fact that Netflix is a brand with “a bit of gloss” speaks for itself. A split could not only attract more investors, but also allow employees to participate in the company. However, according to the expert, this should not happen in the near future. “Going down that path now would signal that it has lost confidence in its plans to launch advertising capabilities on its platform, plans that are gaining traction among investors, although there is still great caution among traditional growth companies,” Hewson said.
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