In the middle of November, Netflix will split its stock 10 for 1 this is meant to make the share price easier for employees and regular investors to handle without changing the company’s overall value.
The company said in a press release that the board approved the forward split to bring the trading price back to a level that makes its employee stock option program more accessible and makes retail buyers less shocked by the price.
Shareholders who own shares as of the end of business on Monday, November 10, will get nine more shares after the end of business on Friday, November 14.
The stock will start trading on a split-adjusted basis on Monday, November 17. The split does not affect the holder’s financial stake or Netflix’s market value.
The announcement comes after a strong run for the streaming pioneer that lasted for several years and at a time when interest in megacap tech is rising again.
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Splits don’t change much about the stock itself, but they can make it easier for more people to buy it by lowering the price of a single share and making spreads tighter, which can slightly improve trading depth.
When markets open on November 17, the share price should drop to about one tenth of what it was before the split.
Investors who own Netflix shares on the record date will see their position grow by a factor of ten after the split.
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For instance, someone who owned 10 shares would own 100 after the split, and the total dollar value would stay the same except for normal market changes.
A forward split is not a taxable event, so Canadian and U.S. investors don’t have to worry about how their adjusted cost base or cost basis will be recorded in their accounts.
Netflix has split its stock in the past. For example, in 2004 it split its stock 2 for 1 and in 2015 it split its stock 7 for 1.
The most recent action comes as the company focuses on new ways to make money, like enforcing password sharing and advertising, as well as a programming slate that management says can support long term growth in subscribers and cash flow.
A lower nominal price may get more attention from retailers, but institutional investors usually look at things like margins, content spending, and free cash flow to value a business instead of the share price itself.
The split’s effect on portfolio construction is more about position sizing and options strategy than intrinsic value.
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Once the unit price drops, retail investors who used to avoid buying odd lots may find it easier to build or cut their exposure in smaller amounts. As the notional value of contracts goes down, options traders may find that contract prices become easier to reach.
This could open up more covered call and protective put strategies. A split won’t cause index funds and ETFs to rebalance on their own, since the market value stays the same.
In the past, some well known splits have happened at the same time as positive stories about growth and liquidity, but how well they do after that depends on how well they are carried out.
Netflix will pay more attention to subscriber churn, engagement, ad-tier traction, and the direction of operating margin.
