Netflix is investing heavily in original programming to keep the U.S. business growing and support chief executive Reed Hastings’s international expansion.Paul Sakuma/The Associated Press
Netflix will execute a seven-for-one stock split next month in a widely anticipated move designed to make the Internet video service's shares more affordable to a bigger pool of investors.
The split has been expected since Netflix stockholders voted two weeks ago to authorize the Los Gatos, California, company to substantially increase the number of its outstanding shares. Netflix Inc. hadn't specified the size or timing of the split until Tuesday.
The split will award six additional shares for every share held by Netflix stockholders as of July 2.
When the split occurs July 14, the price of Netflix's stock will drop sharply to account for the issuance of the additional shares. The company's market value, which currently stands at about $41-billion, won't be affected by the split.
Although many analysts deride splits as a gimmick, the manoeuvr often gets people more excited about a stock. Some investors like the idea of being able to buy more shares at a lower price following the split. Others view a stock selling a lower price as a better bargain, even though the company's market value remains the same.
After the split, Netflix's stock is likely to initially trade at one-seventh of its previous price. Based on Tuesday's closing price of $681.19, Netflix's stock would drop to slightly below $100 after the seven-for-one split.
The size of Netflix's split mirrors one that iPhone maker Apple pulled off slightly more than a year ago when its stock was also trading above $600. Since its split, Apple's stock has surged by 38 per cent, outpacing a 9 per cent gain in the Standard & Poor's 500 index during the same stretch.
Netflix's stock has been among the market's top performer during the past two-and-half years, a period in which its video service has added 29 million subscribers worldwide while expanding into dozens of countries and winning awards for its original programming.
The shares have increased by more than sevenfold since the end of 2012. Meanwhile, the S&P 500 has climbed by nearly 50 per cent.