Netflix is Splitting Its Shares 10-for-1: What Should Investors Expect?

Netflix (NFLX) announced last Thursday that it has decided to split its shares at a ratio of 10 to 1. This means that Netflix shareholders will receive 10 shares for each share they currently own.

As a result of the split, shares will trade at a tenth of the current price of $1,089. The company stated that this move aims to 'readjust the market price of the company's common stock' to make participation in the company's stock option program more accessible for employees.

The stock price increased by 3% on Thursday following the announcement. Netflix shares will begin trading at the adjusted prices after the split on November 17. If the shares were to split now, the price would be around $110.

The price of a company's stock is the result of basic mathematical calculation; the company's market value is divided by the total number of shares outstanding. Theoretically, the price of any company's stock can be at any value, and this price does not affect the company's overall valuation. However, some academic research suggests that stocks tend to perform better after the announcement of a stock split; this indicates that investors view this announcement from management as conveying new information.

This announcement on Thursday marked Netflix's third stock split in the company's history; previous splits were conducted in 2015 at a 7-for-1 ratio and in 2004 at a 2-for-1 ratio. Since its initial public offering in 2002, Netflix shares have gained over 100,000%.