Netflix Stock Split: Don't Fall for the Hype
Oh, look, another stock split. Netflix, riding high after a frankly ridiculous 300% surge in the last three years, is pulling the old "10-for-1" trick. The idea? Make shares seem cheaper so the little guys can jump in. Give me a break.
The Illusion of Affordability
It's like relabeling a $100 bill as ten $10s and expecting people to think they're getting a deal. A stock split changes absolutely nothing about the underlying value of the company. Nada. Zilch. It's financial sleight of hand, pure and simple.
Sure, some "researchers" claim stock splits lead to positive returns. Probably because companies usually do this after they've already seen some growth. Correlation, not causation, people! Some analysts, however, still believe that 4 Reasons Netflix Stock Is a Buy Today.
And who are these "smaller investors" they're supposedly helping? Are we supposed to feel sorry for people who can't afford a single share of a company valued at half a trillion dollars? Maybe they should, I don't know, invest in something they can afford instead of chasing the latest shiny object.
The Numbers Game
Netflix's Q3 earnings? Respectable, they say. Sales up 17.2%. Okay, fine. But net income only grew by 8%. Eight freaking percent! Meanwhile, Nvidia is over here growing net income by almost 60% and they're trading at a lower forward P/E ratio. What are we even doing here?
They're patting themselves on the back for cracking down on password sharing. As if that's some kind of innovative business strategy. It's called enforcing the terms of service, people. It's like a restaurant charging extra for water and calling it a "hydration monetization initiative."
And let's talk about this "globalized business model." They're in 190 countries! Wow, groundbreaking. Except, according to Reuters, they only have 10 million users in India. 10 million out of 1.45 billion! That's less than 1%. At this rate they will be lucky to get 5% of the Indian Market.
Speaking of India, I recently ordered some "Indian" food and it was so bland it tasted like it came straight out of a factory. It's like these companies think they can just slap a label on something and call it authentic. I hate the fact that everything I love gets ruined by corporate greed.
The Valuation Problem
Here's the real kicker: Netflix's forward P/E multiple is 37. Thirty-seven! That's insane for a company with single-digit income growth. The S&P 500 averages 22! Are people really this blinded by the Netflix logo?
They keep talking about ad revenue doubling. Great. From a "relatively small" base. That's like saying my chances of winning the lottery are doubling... from zero to slightly above zero. It's still zero!
Offcourse, the analysts will tell you about "long-term growth potential" and "emerging markets." It's the same old song and dance. Projecting future growth is basically just guessing.
Then again, maybe I'm just being a grumpy old cynic. Maybe Netflix really is the future of entertainment. Maybe I should just shut up and buy some shares. Nah.
So, What's the Real Story?
Netflix is overvalued. The stock split is a distraction. The growth story is shaky. Don't get suckered in.