Despite Catapulting to an All-Time High, Netflix Just Missed a Golden Opportunity

Market Performance and FAANG Stocks - The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite rose by 13%, 23%, and 29% respectively in 2024, with all three indexes hitting multiple record-closing highs [1] - FAANG stocks, including Netflix, have significantly outperformed the S&P 500 over the trailing 10-year period, driven by first-mover and sustainable competitive advantages [2] - Netflix has been a key driver of the S&P 500's performance in early 2025 [3] Netflix's Stock and Financial Performance - Netflix's stock reached an all-time intra-day high of $999 per share, up nearly 10% for the year, 79% over the trailing year, and close to a 1,500% gain over the trailing decade [4] - The company added 18.91 million global streaming subscribers in Q4 2024, significantly higher than the 2 million to 13 million range seen since early 2023 [5] - Netflix's ad-supported tier has attracted 70 million paying subscribers since its introduction in November 2022, resolving the subscriber growth slowdown experienced in 2022 [7] Netflix's Strategic Initiatives - Netflix's original content, including top shows like Squid Game, Wednesday, and Stranger Things, has driven viewership and subscriber retention [6] - The company's crackdown on password sharing has boosted subscriber growth and supported the rapid expansion of its ad-supported tier [8] - Netflix has increased the price of its ad-based tier by$ 1 to $7.99, and its ad-free and premium plans by$ 2.50 and $2 to$ 17.99 and $24.99 respectively, leveraging its pricing power [9] Stock Split Opportunity - Netflix's board missed an opportunity to announce a stock split, which could have made shares more affordable for retail investors [12] - Historically, companies that undertake stock splits have averaged a 25.4% return in the 12 months following the announcement, compared to the S&P 500's 11.9% return [14] - A stock split could attract retail investors, as only 18% of Netflix's shares are owned by non-institutional investors, likely due to the high share price of nearly$ 978 [16] Valuation and Market Context - Netflix is trading at 11 times its trailing-12-month sales, a level that has historically preceded significant share price declines [18] - The S&P 500's Shiller P/E ratio is at its third-highest reading (nearly 39) during a continuous bull market, indicating a historically pricey stock market [17] - Despite its premium valuation, a stock split could make Netflix's stock more attractive to investors, given the historical outperformance of split stocks [19]