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Netflix announces 7-for-1 stock split; shares soar

Netflix announces 7-for-1 stock split; shares soar

Video streamer Netflix announced Tuesday it approved a 7-for-1 stock split – ending years of waiting by investors as the stock price soared to nosebleed levels. The move was highly anticipated as the stock’s gains have skyrocketed 182% over the past 12 months making Netflix the company in the Standard & Poor’s 500 with the fourth highest stock price. Netflix stock closed up $6.29, or 0.9%, to $681.19 Tuesday – and jumped another 2.6% after the market closed on the news.netflix-building-fromap

The company last split its stock in February 2004 with a 2-for-1 deal when shares were trading for a non-split adjusted price of roughly $73 a share. The additional shares following this latest split will be payable on July 14 to investors who owned the shares as of the close on July 2. Netflix’ split follows recent moves by other tech companies that also had high per-share stock prices including Google (GOOGL) and Apple (AAPL). Apple split its shares in a 7-for-1 deal last June. There are 14 other big stocks that should consider splitting.

Netflix trails just Berkshire Hathaway, Priceline (PCLN) and AutoZone (AZO) as companies in the S&P 500 with the highest per-share prices. Those shares closed Tuesday at $211,900, $1,155.95 and $684.54, respectively. There are just 13 companies in the Standard & Poor’s 500 with shares that trade for $300 a share or higher, says S&P Capital IQ. Following the move, Netflix would have seven times the number of shares outstanding as it does now, which is 60.6 million. But the stock price would fall from $681.19 to $97.31. All things held equal, the company’s market value would remain $41.3 billion after the split.

Some analysts expect companies to warm up to splits again. So far this year, seven companies in the Standard & Poor’s 500 have split their shares, says S&P Capital IQ. That’s on pace to exceed the 11 stock splits in the S&P 500 in all of 2014. Stock splits are viewed as a way to make the per-share stock price appear more attractive to individual investors, who might have sticker shock from a stock trading at more than $600 a share. Some academic research also suggests stock splits might indicate some degree of faith by management in the stability of the stock.

Stock splits went out of favor following the dot-com boom – after many companies saw their stock prices plummet to low levels. There was also a bit of an arms race between companies like Apple and Google to see which one could have the highest stock price. Many companies looked to Warren Buffett’s Berkshire Hathaway as a long-standing symbol of a high per-share stock price being a status symbol. But that’s changed as some high-profile companies have split their shares. Even Buffett split Berkshire Hathaway’s lower-priced B shares in a 50-for-1 deal in 2010 to help finance the $27 billion buyout of Burlington Northern Santa Fe.