When a company’s value escalates over the long term, its stock price can escalate into the hundreds or thousands of dollars. Such lofty prices deter smaller investors from purchasing, unless they resort to brokers offering fractional shares. As a remedy, companies may opt for a stock split, expanding the share count and naturally reducing the price per share proportionally.
It is crucial to grasp that a stock split is purely superficial, holding no impact on the fundamental value of the company. Nevertheless, splits frequently result in a short-term surge in stock price as a wider investor base seize the opportunity to buy.
Nvidia demonstrated this phenomenon with a 10-for-1 split in June, when the stock price surpassed $1,200 after an extraordinary spell of value generation driven by artificial intelligence (AI). Consequently, investors can now acquire a Nvidia share for just $126. A myriad of other tech behemoths have resorted to stock splits in the past, including Microsoft, Apple, Amazon, and Tesla, amongst others.
I suggest that Netflix and Meta Platforms could potentially consider a split soon as their shares are valued at $690 and $539, respectively, with the potential to ascend even further.
Image source: Getty Images.
Netflix: The Streaming Titan
Netflix stands as the world’s largest streaming platform with a whopping 269.9 million subscribers. For Disney to catch up with its service, Disney+ boasting 153.6 million members, seems improbable given Netflix’s extensive content offerings and operational efficiency.
Being the sole stand-alone streaming provider manifesting consistent profitability, Netflix achieved $6.4 billion in net income over the past four quarters from a total revenue of $34.9 billion. This financial stability enables heavy investment in content to lure more users without draining finances. The company intends to invest $17 billion this year in content production and acquisition, while Disney plans to slash billions from its budget.
Netflix’s strategic maneuvers include delving into live programming. Notable successes like The Roast of Tom Brady garnered 2 million viewers during its live broadcast in May. The platform anticipates surpassing this figure with events like the Jake Paul vs. Mike Tyson boxing match in November, and possibly with two live NFL games on Christmas Day.
For a decade from 2025, Netflix will exclusively host World Wrestling Entertainment (WWE), presenting several live events annually.
Netflix focused the last two years on enticing lower-income spectrum subscribers with cheaper membership tiers.
The company’s strategic pricing models include a $7.99 monthly sharing plan targeting the 100 million households formerly sharing Netflix accounts. A $6.99 monthly plan coupled with advertising also attracted 40% of new sign-ups in the recent first quarter of 2024 (ending March 31) where available.
Netflix states that the ad tier monetizes at a rate comparable to the standard $15.49 tier. While regular subscribers maintain their value unless subjected to price hikes, ad-tier subscribers hold potential for increased value over time.
Despite occupying just 8.1% of the U.S. TV viewing time, Netflix has substantial growth prospects. Increased screen time allows for more productive ad sales, particularly in a market forecasted to spend approximately $337 billion on TV advertising this year, as per Statista. This presents advertising as one of Netflix’s most lucrative financial prospects.
Currently trading at $690, with a 57% gain over the past year, Netflix might soon surpass $1,000 with continued growth. Therefore, a stock split appears inevitable eventually, especially considering the company’s history of splits in 2012 and 2015.
Meta Platforms: AI & Beyond
Meta Platforms, valued over $1 trillion, stands as the lone entity in this bracket yet to undergo a stock split. Since its inception in 2012 at $38, Meta has surged by 1,321% to reach $539 currently, showcasing significant value creation.
Home to social media giants like Facebook, Instagram, WhatsApp, and Messenger, serving 3.2 billion individuals daily, Meta operates as a cash-generating juggernaut. Earning $45.7 billion in net income over the past four quarters from $142.7 billion in revenue, Meta’s prime financial opportunity may be on the horizon.
Turning to AI last year, Meta introduced the world’s leading open-source large language model (LLM) named Llama, powering the new Meta AI chatbot seamlessly integrated across its social platforms. Users can leverage Meta AI for intricate queries, image generation, restaurant or gift recommendations, and even group chat participation.
Meta AI, fueled by the advanced Llama 3 LLM, anticipates unlocking new capabilities with the next iteration. Envision a future where every business utilizing Meta’s apps possesses a personalized chatbot to manage customer inquiries and potentially drive sales.
Proficient in monetizing novel features, Meta is poised to derive revenue from its AI products and services, given its track record with Stories and Reels. Trading at a discounted price-to-earnings (P/E) ratio of 31, Meta holds a promising position
The Intriguing Financial Landscape of Nasdaq-100 Stocks
Is Meta Stock a Bargain or a Buoy?
The Nasdaq-100 index flaunts a hefty 32.4 P/E ratio. Yet, the speculations swirling on Wall Street whisper a hushed possibility of even cheaper days ahead. Analysts anticipate a $23.09 surge in earnings per share for the company by 2025, ushering in a forward P/E estimate of 23.4. This effectively marks a bar for Meta stock – a turnaround of 38% beckons if it aims to align with Nasdaq-100 positioning.
A record high summit of $745 awaits Meta stock should these forecasts hold true. Fuelled by the riveting waves of the company’s upwards momentum, a stock split might well herald the attainment of this peak before the stipulated timeline.
Insights into Investment: A Glimpse at Netflix
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