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Generated Title: Netflix's Stock Split: A Real Deal or Just a Cosmetic Change?
The Illusion of Value
Netflix is splitting its stock 10-for-1. The headlines are buzzing, retail investors are getting excited, and the stock price is… well, doing what stock prices do: fluctuating. But let’s cut through the noise and look at the actual data. A stock split is, fundamentally, a cosmetic procedure. It’s like trading a hundred dollar bill for ten tens. You haven't created any new wealth; you've just rearranged it.
The argument, of course, is that a lower share price makes the stock more accessible. True, a $110 stock (post-split) is easier for smaller investors to swallow than an $1100 one. And accessibility can drive demand. Some studies (cited, predictably, by firms that benefit from trading volume) suggest that companies announcing splits see above-average returns in the following year. But correlation isn’t causation. Companies don’t split their stock because they want higher returns; they split it because their stock has already risen significantly. It's a symptom of success, not a cause of it.
Netflix’s Q3 report showed a 17.2% year-over-year increase in sales, hitting $11.5 billion. Not bad. They are boasting about their highest quarterly market share in the U.S. and the U.K. And the Canelo vs. Crawford fight apparently broke viewership records. All good news, but is it split-worthy news?
Netflix is clearly executing well, but let’s talk about valuation. The forward price-to-earnings (P/E) multiple is sitting around 37. The S&P 500 averages around 22, and even Nvidia—a company growing net income at a frankly absurd rate—trades at a forward P/E of only 30. So, what gives? Netflix bulls will point to global expansion. They’ll talk about the untapped potential in markets like India, where Netflix penetration is still below 1%. But potential is just that: potential. It doesn't guarantee future profits.
The Ad Tier Gamble
The real story, in my opinion, is the ad-supported tier. Netflix doesn't disclose the specific revenue numbers, but management claims it's on track to double this year. That's significant. Ads are a higher-margin business than subscriptions, and they open up a whole new revenue stream from users who are price-sensitive. But let’s be realistic. How much can Netflix realistically squeeze out of advertising?
Consider this: The average CPM (cost per thousand impressions) for video ads is around $10-$20. Let’s say Netflix manages to achieve a CPM of $15. And let’s assume that each ad-supported user watches, on average, 4 hours of content per month, with 5 minutes of ads per hour. That’s 20 minutes of ads per month, or 1200 seconds. At 30 seconds per ad, that's 40 ads per user. That translates to roughly $0.60 per user per month. (Yes, my math checks out.)
Even if Netflix manages to get 100 million ad-supported users (a massive if), that's only $60 million per month, or $720 million per year. That’s a rounding error for a company with $11.5 billion in quarterly revenue. The ad tier is a nice addition, but it's not going to fundamentally change the valuation story.
I've looked at hundreds of these types of reports, and this is the part that I find genuinely puzzling: the unquestioning acceptance of management's projections. Why are analysts so willing to take these numbers at face value? What's the basis for these assumptions? Are they factoring in churn, ad fatigue, and the inevitable pushback from users who are forced to watch commercials?
Smoke and Mirrors?
So, is Netflix a buy after the split? The data suggests… maybe. The company is growing, but the valuation is stretched. The ad tier is promising, but the numbers don't quite add up to a game-changer. The stock split itself is irrelevant. It’s a PR move designed to generate excitement and attract retail investors. It's a magician's trick: diverting your attention while the real action happens behind the scenes. Some analysts are weighing in, such as this article titled Is Netflix a Buy After the 10-for-1 Stock Split?. It's a magician's trick: diverting your attention while the real action happens behind the scenes.
A Reality Check
Netflix is a solid company, but this split is mostly hype. Don't let the shiny new share price fool you. Focus on the fundamentals, and do your own math.