Netflix, Inc. NFLX declared a 7:1 stock split after the closing bell on Jun 23. The split will be in the form of a stock dividend of six additional shares against each outstanding share. The stock dividend will be paid on Jul 14, to stockholders of record as of Jul 2, 2015.
Netflix shares spiked 3% and reached an all-time high of $681.73 on Tuesday Jun 23. However, Following the news, on Jun 24, the stock registered a correction and share prices were down 0.4% ($2.58) to $678.61 at closing.
Rumors of Netflix' stock split made the rounds when the company approved a massive increase in its share authorization. The authorization has been expanded from 170 million to 5 billion including preferred stock.
It is expected that the stock split will make Netflix more accessible to retail investors and help it to pool in more capital over the long term.
Further, the company wants to attain greater flexibility in terms of issuing dividends, access to equity financing, option grants and acquisition deals. In addition, there would be greater liquidity that Netflix can achieve by trading more volume of shares. However, Netflix is currently trading at a P/E ratio of 176.86, which somewhat limits the upside to the stock.
Notably, some of the big shot investors such as Carl Icahn have been exiting positions on Netflix. Reportedly, Icahn sold his remaining holdings in Netflix last Wednesday and made around $993 million. If rumors are to be believed, the billionaire investor made approximately $2 billion in total from his entire Netflix holdings. According to reports, the billionaire investor first took a 10% stake in Netflix in 2012 at a cost of $58 a share.
The company currently banks heavily on financial institutions and hedge funds, who can apparently endure the risk of this hefty stock valuation. But, over the long term, it has to gain retail investors to bring in stability.
However, it remains unclear as to how Netflix will be able to attract retail investors, given a current volatile market valuation. Hopefully, the stock split will come in handy for the company and it can lure people to buy shares for less than a penny, without affecting its market cap.
We believe that Netflix, despite its lofty valuation, does possess growth potential based on fundamentals. The company is into expanding its business internationally, which is considered to be a key driving factor.
Last September, the company expanded its services to six new European countries namely Germany, Austria, Switzerland, France, Belgium and Luxemborg. Also, the company expanded to Cuba this February.
In addition, Netflix is set to debut in Italy, Spain and Portugal by Oct 2015, further expanding its presence in the European continent. The ongoing expansion has resulted in higher paid members in this International segment, up 64% year over year in the first quarter. Further, the company's International revenues surged 55.4%, driven by its increased focus on global expansion and lent a positive outlook for its growth.
Currently, Netflix has a Zacks Rank #3 (Hold). Better-ranked stocks in the technology sector include Attunity, Ltd. ATTU and AVG Technologies N.V. AVG, both sporting a Zacks Rank #1 (Strong Buy) and Blue Nile Inc. NILE with a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment