For the second time in ten years! Netflix announces a "10-for-1" stock split to facilitate employee option exercises

After the stock price broke the $1,000 mark, Netflix announced a 10-for-1 stock split, marking its second stock split in a decade.

According to a statement released on Thursday, the streaming giant has approved the split plan. Shareholders on record as of the close of trading on November 10 will receive an additional nine shares for each share they hold. The split-adjusted shares are expected to begin trading on November 17.

Following the announcement, Netflix's stock price rose about 3% in after-hours trading. The company's stock closed at $1,089 in New York on Thursday, making it one of ten companies in the S&P 500 with a stock price over $1,000. The stock has gained 22% year-to-date.

The core driver of this stock split is employee motivation. When the stock price reaches the $1,000 level, employees face liquidity and management inconveniences when exercising or trading stock options. By splitting the stock, the nominal price per share is reduced, allowing employees to manage their equity incentives more flexibly.

A stock split itself does not change the company's fundamentals, but by lowering the investment threshold, it is generally seen as a positive signal by the market.

For Netflix, this is its second stock split in nearly a decade. The company previously conducted a 7-for-1 split in July 2015 and a 2-for-1 split earlier in 2004. Since the last split in 2015, Netflix's stock price has surged significantly.

Strong Performance but Growth Concerns Emerge

Netflix's decision to split its stock is based on its strong business performance. As the world's most popular paid streaming service, its earnings have consistently exceeded market expectations, outperforming its media competitors.

In July of this year, thanks to the release of a series of popular shows and a weaker dollar, Netflix raised its full-year sales and profit margin guidance. At one point, its market capitalization surpassed $500 billion, exceeding the combined total of The Walt Disney Company, Comcast, and Warner Bros. Discovery.

However, Netflix's stock price has not been without its challenges recently. After releasing its latest financial report earlier this month, its stock price dropped by as much as 10%. Reports indicate that a tax dispute in Brazil has impacted the company's earnings and raised market concerns about future growth.

Stock Split May Boost Valuation, but Fundamentals are Key

Analysts hold a cautiously optimistic view on the market impact of this stock split.

Geetha Ranganathan, an analyst at Bloomberg Industry Research, wrote in a report that the stock split "could drive its valuation, as the company's valuation has compressed by 19% since the peak in June."

However, she emphasized that improvements in fundamentals will be the "greater driver" of valuation multiple expansion. She pointed out that these fundamental factors include "growth in advertising revenue, solid pricing power, and strong user engagement."

For investors, while the short-term effects of the stock split are certainly worth noting, whether Netflix can continue to create value in its core business is the key to determining its long-term investment value