Netflix (NASDAQ: NFLX), the video streaming company, announced on June 23 its approval of a seven for one split of its stock, thus ending the anticipation of investors who had patiently waited for a number of years for this announcement. The news sent the company's stock price to stratospheric levels. It means that present investors in the company will get seven shares for each share they presently own.
Rationale behind split
The aim of this stock split is to enable everyday investors buy the expensive stock. To put this in perspective, each Netflix share is now worth a heart stopping $681, making it one of the ultra-expensive stocks in the S&P500. The same amount, in contrast, can get an investor eight Facebook shares. The company has announced that the split will take stock dividend form and scheduled to happen on July 14. Investors will hopefully get the new shares at approximately $100 per share.
The company, however, lags behind AutoZone (NYSE: AZO), Berkshire Hathaway (NYSE: BRK) and Priceline (NASDAQ: PCLN) in the S&P500 list with highest share prices. According to S&P Capital IQ, shares of only 13 companies trade above $300 per share.
Netflix, before this, split its stock in 2004 It was a two for one deal at a time when the company's shares were changing hands at about approximately $73 per share (non-split adjusted price). The extra shares post this recent split will be payable to investors from July 14. To be eligible, the concerned investor must own the shares before or on July 2.
There is a good reason Netflix did this. It is a very hot investment by any parameter. The company is now valued at $41 billion. This surpasses orthodox media players like Viacom (NASDAQ: VIAB) or CBS (NYSE: CBS). Echoing the positive trend, BTIG, the brokering company, upped Netflix's price target to $950. It means 40 percent gains from present levels.
Netflix's rise has been stunning. It began as a DVD rental service and transformed itself into a streaming giant, generating blockbusters like “Orange is the New Black” and “House of Cards”. It also released a number of hits, like “Daredevil” and “Bloodline”. The subscription list of the company is burgeoning. It currently has 62 million subscriptions listed in its roster. Investors have applauded the stock split it showed in the two percent rise of the stock after-hours trading to $696 on June 23.