A Closer Look at Stock Splits: Opportunities with Meta and Netflix

A stock split can indicate that a company’s management believes its recent strong stock performance will continue. While a split does not change the company’s underlying business fundamentals, it can make stock prices easier to manage for share-based compensation and options trading. For investors who prefer a long-term approach, a stock split can generate increased interest in a stock, possibly pushing its price higher.

Identifying potential stock-split candidates can be beneficial for investors. Entering a stock before a split announcement allows investors to take advantage of the increased interest. However, it is crucial that the company has solid financial foundations and that its stock price can rise, regardless of whether a split occurs.

Meta Platforms: Rising 390% Since October 2022

Meta Platforms has seen significant growth attributed to a focused approach by management. CEO Mark Zuckerberg labeled 2023 the “year of efficiency” for Meta, aiming to reduce expenses and concentrate on factors that could truly benefit the company.

As a result, Meta’s operating earnings climbed by 62% in 2023, with a further 52% increase within the first nine months of 2024, despite significant investments in artificial intelligence (AI).

AI is central to Meta’s operations. It employs machine learning algorithms to enhance user engagement and advertising effectiveness, resulting in higher ad prices. Recent advancements in large language models allowed Meta to improve its recommendation engine significantly.

Generative AI may create more content for user-generated apps and increase interactions on messaging platforms. Zuckerberg envisions a future where businesses can communicate advertising goals and budgets directly to Meta, with AI managing the execution.

As of now, Meta’s stock trades at $620. A stock split could align its price more closely with other tech companies that have undergone splits in recent years. The median price target from Wall Street is $660 per share, suggesting a potential 6% increase. Additionally, current stock trading is less than 25 times analysts’ 2025 earnings predictions, making it appealing compared to other major AI companies, indicating potential revisions in price targets soon.

Netflix: Growing 300% Since October 2022

Over the past two years, Netflix experienced noticeable growth due to two major strategic changes.

Initially, the company introduced an ad-supported tier in late 2022, attracting 70 million viewers to this new option. This move helped boost overall subscriber growth by 27% over two years, while also laying the groundwork for greater content opportunities, including live events and sports broadcasts.

Secondly, Netflix cracked down on password sharing, making it clear that sharing accounts across different households was no longer acceptable. While they faced some initial challenges, this decision resulted in a notable increase in subscriber revenue.

Netflix still has room to expand its subscriber base internationally. Additionally, it can enhance revenue per membership through increased advertising opportunities and higher prices for its ad-free subscriptions.

Currently, Netflix’s stock is trading at approximately $920 per share, which is higher than its previous split in 2015 when it traded around $700 per share. Analysts maintain a buy rating on the stock, with a recent price target set by JPMorgan at $1,010, signaling nearly a 10% potential upside in the coming year.

The company’s stock valuation has surged significantly in the past two years, now trading for 46 times forward earnings estimates. However, with considerable operating leverage, Netflix might demonstrate strong earnings growth for years, especially as it transitions more revenues toward advertising.

Explore Investment Opportunities Before Stocks Split

If you often feel you missed out on top-performing stocks, here’s a chance to consider.

Occasionally, analysts recommend a “Double Down” stock—suggesting companies they believe are on the verge of significant growth. Even if you think you missed your window, there’s still potential to invest wisely before it’s too late. Here are some striking examples:

• Nvidia: If you invested $1,000 when we doubled down in 2009, Your return would be $348,112!
• Apple: If you invested $1,000 when we doubled down in 2008,Your return would be $46,992!
• Netflix: If you invested $1,000 when we doubled down in 2004,Your return would be $495,539!

Currently, we are issuing “Double Down” alerts for three remarkable companies. This might be an excellent opportunity that won’t come around frequently.

View 3 “Double Down” stocks »

*Stock Advisor returns as of December 9, 2024

Randi Zuckerberg, a former market development director and spokesperson for Facebook, is a member of The Motley Fool’s board of directors. Adam Levy has investments in Meta Platforms and Netflix. The Motley Fool maintains positions in and recommends both companies. They follow a disclosure policy.

The views and opinions expressed herein reflect those of the author and do not necessarily represent those of Nasdaq, Inc.