Netflix Inc next month will execute a seven-for-one stock split in a widely anticipated move designed to make the Internet video service’s shares more affordable to a bigger pool of investors.
The split has been expected since Netflix stockholders voted two weeks ago to authorize the Los Gatos, California, company to substantially increase the number of its issued shares. Netflix Inc had not specified the size or timing of the split until Tuesday.
The split will award six additional shares for every share held by Netflix stockholders as of Thursday next week.
When the split occurs on July 14, the price of Netflix’s stock will drop sharply to account for the issuance of the additional shares.
The company’s market value, which currently stands at about US$41 billion, will not be affected by the split.
Although many analysts deride splits as a gimmick, the maneuver often gets people more excited about a stock.
Some investors like the idea of being able to buy more shares at a lower price following the split. Others view a stock selling at a lower price as a better bargain, even though the company’s market value remains the same.
After the split, Netflix’s stock is likely to initially trade at one-seventh of its previous price. Based on Tuesday’s closing price of US$681.19, Netflix’s stock would drop to slightly below US$100 after the seven-for-one split.
The size of Netflix’s split mirrors one that iPhone maker Apple Inc pulled off slightly more than a year ago when its stock was also trading above US$600. Since its split, Apple’s stock has surged by 38 percent, outpacing a 9 percent gain in the Standard & Poor’s 500 index during the same stretch.
Netflix’s stock has been among the market’s top performers during the past two-and-half years, a period in which its video service has added 29 million subscribers worldwide while expanding into dozens of countries and winning awards for its original programming.
The shares have increased by more than sevenfold since the end of 2012. Meanwhile, the S&P 500 has climbed by nearly 50 percent. Netflix’s stock price is nearly 19 times higher than it was before the company’s only other split in 2004.
The company’s shares jumped US$22.63, or 3.3 percent, in aftermarket trading to US$703.82 following the announcement of the stock split.
Netflix rose in German trading early yesterday, climbing almost 4 percent to the equivalent of US$707.63 at 11:20am in Frankfurt.
Additional reporting by Bloomberg
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