After weeks of rumors that it would do so, Netflix's board has approved a seven-for-one stock split. The move, according to The Wall Street Journal, could generate renewed interest in the SVOD provider's stock price, driving up the newly split shares' value more quickly.
In the short term, the stock split will give smaller investors a chance to buy into Netflix's red-hot shares, and won't necessarily change the company's valuation at all, BTIG analyst Richard Greenfield told Variety.
Investors will receive a stock dividend of six additional shares of Netflix common stock for each outstanding share of common stock, the company said, payable on July 14 to shareholders who are on record on July 2.
Netflix shares closed Tuesday at $681.19 and climbed 2.7 percent in after-hours trading to $699.60 per share.
Shares will begin trading at the post-split price on July 15.
Chalk up another one for Mark Cuban, who last year advised stock market speculators to buy Netflix (NASDAQ: NFLX) when the SVOD service's shares were already above a then-unthinkable $400. Now research firm BTIG, which in October 2014 forecast Netflix's climb past $600, is telling investors to get ready for a huge bump in share prices to $950 by this time next year.
"While Netflix has exceeded our $600 one-year price target, we believe its business model is gaining meaningful momentum. In turn, we are setting a new one-year price target of $950, up 45 percent," wrote BTIG analyst Richard Greenfield in a blog post on the research firm's website. BTIG maintained a "buy" rating for the provider.
Part of the firm's forecast is due to Greenfield dropping the belief that Netflix will hit a subscriber ceiling in the U.S. Because Netflix is continuing to expand its programming lineup, at a significantly lower cost than services like HBO Now, consumers retreating from the "fraying MVPD bundle" will increasingly choose Netflix over other SVOD services. That means the 50 million subscriber ceiling BTIG fretted about is likely no longer a problem. Worldwide, BTIG estimated that subscriber numbers will jump to 108 million by 2017.
Further, despite traditional media and entertainment companies accelerating their shift into OTT, they are still "ill-prepared to make the transition" for a number of reasons, including lacking the technical expertise to shift their networks to direct-to-consumer models.
But is BTIG's sunny forecast realistic? It's not the only one giving Netflix a thumbs-up: Oppenheimer gave it an "outperform" rating on June 19, predicting an $800 share price, and Needham & Co. raised their target price to $780 as well, according to Dakota Financial News.
"Out of 43 analysts polled by TipRanks, 30 rate Netflix stock a Buy, 10 rate the stock a Hold, and 3 rate it a Sell," wrote Kate George, editor at SmarterAnalyst, adding that the consensus target price for Netflix stock, based on the TipRanks poll, stands at $646.42.
Some clear obstacles could also slow Netflix's stock rise. Broadcasters, networks and distributors may have responded late to the starting gun on OTT, but they are powerful industry players with plenty of access to resources. TV Everywhere initiatives will draw away some subscribers, Greenfield noted. And competing SVOD services like Amazon (NASDAQ: AMZN) Prime Instant Video and Hulu could also dampen subscriber numbers.
Licensing content is another big factor, with costs continuing to rise for Netflix--it already spends billions of dollars per year on third-party content licensing.
And despite net neutrality rules going into effect, roadblocks are still likely to arise in the broadband arena with ISPs getting creative about controlling their bandwidth, from pricing to managed services deals that get around broadband usage caps.
How these will affect Netflix remains to be seen. But keep in mind, Cuban is also the guy who predicted, back in 2010, that Netflix wouldn't last. People can't all be right all the time.
For more:
- Variety has this story
- see this BTIG post (sub. req.)
- Dakota Financial News has this story
- Consumerist has this story
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SeaChange's Samit: Business models, legal issues hold back IP video technology
Cable tries to counter OTT onslaught with TV Everywhere, VOD services
Netflix 'in talks' to launch in China as shares top $600
Article updated June 23 after the company announced its planned stock split.