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Stocks Soar in 2024: Will Meta and Netflix Lead the Next Wave of Stock Splits?
As 2024 comes to an end, investors have reason to celebrate. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all recorded multiple record-closing highs this year.
Driving this success were various factors, including stronger-than-expected corporate earnings, Donald Trump’s victory in November (which historically boosts stock prices), and the surge in artificial intelligence (AI) developments. A noteworthy contributor to market enthusiasm has also been the excitement around stock splits.
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Wall Street Buzzes Over Stock Splits
A stock split is a strategy that allows companies to change their share price and the total number of shares without affecting the overall market cap or financial performance. These adjustments are cosmetic but can significantly influence investor perception.
There are two primary types of splits. Reverse splits are less favored by investors because they typically occur when a company is trying to increase its share price to remain listed on major exchanges, often signaling hardship. Conversely, forward splits tend to attract attention. They lower the share price, making it more accessible for regular investors who may not buy fractional shares.
Forward splits show remarkable performance records. According to data from Bank of America Global Research, these splits produced an average return of 25.4% in the year following announcements from 1980 onwards, far surpassing the S&P 500’s average of 11.9% in the same timeframe.
In 2024 alone, more than a dozen well-known companies executed stock splits, predominantly forward. This trend keeps investors eager for announcements from future candidates.
Let’s explore two outstanding companies that could make headlines with significant stock-split announcements as we enter 2025.
Meta Platforms: A Strong Contender
Out of the many companies with share prices exceeding $1,000, betting on Meta Platforms (NASDAQ: META) emerges as a solid choice. Unlike many peers, Meta boasts a lower institutional ownership of only 72%, suggesting potential for greater individual investor participation if a forward split occurs.
Meta’s growth story predominantly revolves around its social media prowess. So far in 2024, advertising has represented 98% of its $116.2 billion in revenue. The family of platforms, including Facebook, Instagram, WhatsApp, Threads, and Facebook Messenger, draws a staggering 3.29 billion daily users, outshining competitors and maintaining pricing power.
Moreover, the economic cycle favors Meta’s advertising model. Companies tend to increase marketing budgets during growth periods, leading to increased advertising revenue for Meta.
Meta is not only focused on its social media strength; it is also investing heavily in AI. In January 2024, the company announced plans to purchase 350,000 Hopper (H100) chips from Nvidia for over $10 billion. These chips will enhance AI training, including Meta’s Llama 3 model, improving operational efficiencies.
With a hefty $71 billion in cash and efficient cash flow generation exceeding $21 billion per quarter, Meta is well-positioned to consider ambitious investments and strategies that others may not afford. Recently, with its stock frequently surpassing $600 per share, a stock-split announcement seems overdue.
Image source: Getty Images.
Netflix: Eyes on Growth
Another company in a prime position for a significant stock-split announcement is Netflix (NASDAQ: NFLX). The last time Netflix executed a split was a 7-for-1 forward split on July 15, 2015, when shares were around $700. Currently, Netflix shares are trading at approximately $828.40, suggesting room for a notable split factor.
Netflix has built a strong reputation, effectively leveraging its first-mover advantage in direct-to-consumer content. By the end of the last quarter, it boasted about 282.7 million global streaming subscriptions, solidifying its position in the streaming market.
Notably, Netflix has garnered audience loyalty through its original content, showcasing an array of popular titles like Squid Game, Wednesday, and Stranger Things, which set it apart from other streaming services.
Netflix’s international strategy is also yielding positive results. Despite previous cash burn while expanding globally, the company has significantly improved its free cash flow (FCF) over the past four years.
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Netflix’s Profit Surge and the Impact of Innovations
In recent financial developments, Netflix has seen a considerable uptick in its free cash flow, surpassing $7.1 billion for the year ending September 30.
Innovative Strategies Boost Subscriber Numbers
Netflix’s innovative strategies have yielded impressive results. In November 2022, to address a slowdown in subscriber growth, the company introduced a more affordable ad-supported streaming tier. Now, less than two years later, this feature has attracted 70 million global active users. This ability to adapt and maintain strong subscription pricing suggests a pathway for increasing operating margins moving forward.
Future Stock Split on the Horizon?
There are discussions around a potential significant stock split, possibly an 8-for-1 or 10-for-1 ratio. Such a move might help divert attention from Netflix’s current high valuation. Historically, companies with competitive advantages merit premium valuations; however, Netflix’s forward cash flow multiple of 37 and earnings multiple of 35 seem excessive in a stock market that has already reached notable highs.
Evaluating a $1,000 Investment in Meta Platforms
Before making any investment in Meta Platforms, it’s important to consider the following:
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Bank of America partners with Motley Fool Money for advertising. Randi Zuckerberg, former Facebook market development director and sister to Meta Platforms CEO Mark Zuckerberg, serves on The Motley Fool’s board of directors. Sean Williams holds positions in both Bank of America and Meta Platforms. The Motley Fool also has stakes in and recommends Bank of America, Meta Platforms, Netflix, and Nvidia. Please see our disclosure policy for more information.
The views expressed here belong to the author and do not necessarily reflect those of Nasdaq, Inc.
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