Despite Reaching an Unprecedented Peak, Netflix Overlooked a Potent Chance for Further Success
For the past two years, Wall Street's bulls have been unstoppable, with the Dow Jones, S&P 500, and Nasdaq Composite soaring by 13%, 23%, and 29%, respectively, in 2024. These indexes notched multiple record-closing highs throughout the year.
Various factors fueled this market surge, including the emergence of artificial intelligence (AI) and Donald Trump's Election Day victory in November 2024. Trump's first term saw the Dow, S&P 500, and Nasdaq Composite gain 57%, 70%, and 142%, respectively.
A significant contributor to this historic rally was the FAANG stocks — Meta Platforms (formerly Facebook), Apple, Amazon, Netflix, and Alphabet (formerly Google). These five tech giants have outperformed the benchmark S&P 500's return over the trailing 10-year period due to their first-mover/sustainable competitive advantages. A noteworthy standout among them is Netflix, which boasts an impressive mix of content and innovation.
Netflix's Record-Breaking Quarter
In January 2025, Netflix revealed its fourth-quarter operating results, delighting Wall Street. Although the stock briefly hit $1,000 in after-hours trading, an official intra-day high of $999 per share was recorded the following day. The company's stock has risen by nearly 10% for the year, 79% over the trailing year, and is quickly approaching a 1,500% gain over the trailing decade.
What truly captivated investors was Netflix's staggering subscriber growth. In just three months, the company added a whopping 18.91 million global streaming subscribers, surpassing previous quarterly growth rates between 2 million and 13 million since 2023.
Netflix's success can be attributed to several factors. The company has relied on its original content, such as hits like Squid Game and Stranger Things, and live sporting events to attract new members and retain existing ones. Additionally, the introduction of ad-supported tiers in 2022 has appealed to cost-conscious consumers, contributing to a base of 70 million new paying users.
Netflix's crackdown on password sharing, which required users to create separate accounts, has also boosted subscriber growth and expanded its ad-supported tier. The company's exceptional subscription pricing power in the streaming domain has further strengthened its financial position.
A Missed Opportunity?
Despite a seemingly flawless quarter, Netflix's board of directors may have overlooked a golden opportunity to announce a stock split. Since going public in May 2002, Netflix has executed two stock splits – both 2-for-1 and 7-for-1 in 2004 and 2015, respectively. Given that Netflix's current share price is close to $978, a split could potentially make the stock more accessible for retail investors.
Historically, companies that undergo stock splits have outperformed the market, with an average 25.4% return in the 12 months following the announcement. While past performance does not guarantee future results, a stock split could help attract more retail investors and provide a partial disguise for Netflix's historically high valuation.
After the successful quarter, investors speculated about the potential for a stock split, considering Netflix's share price was close to $978. Historically, companies that undergo stock splits have demonstrated a trend of outperforming the market in the following year, offering a potential advantage for attracting more retail investors and addressing the high valuation.
As Netflix's financial position continues to strengthen due to its innovative content, subscriber growth, and reliance on original programming, smart investors see an opportunity to invest in this thriving finance sector, with technology giants like Netflix leading the way in driving finance growth through innovative services and strategies.