Many stock trading platforms offer the ability to buy fractional shares. So, no matter how expensive a stock gets, people can still invest in it without the company needing to resort to a stock split. However, high-profile stock splits continue to generate excitement, at least if the past few years are any indication. Furthermore, even though fractional shares are a thing, some investors still want to invest in a single whole share of a corporation, which becomes more challenging as the stock price rises.
Leading companies on the market may still decide to run a stock split for these (and other) reasons. Which ones will do so next? Let's consider two candidates: Netflix (NFLX -0.17%) and Booking Holdings (BKNG 2.25%).
Netflix has been on a tear in the past two years as several business changes it implemented helped improve its financial results. In the fourth quarter, the streaming specialist beat analyst estimates again, sending its stock soaring. Netflix's revenue increased by 16% year over year to $10.2 billion, while its earnings per share more than doubled to $4.27. The company ended the quarter with 301.63 million paid subscriptions, a 16% rise from the year-ago period.
As of this writing, Netflix's shares are changing hands for just under $979. There is no official price at which a company must split its stock, but the last time Netflix did so was in 2015, when its shares were under $700 apiece. So, it's not unreasonable to think that management might consider doing so again at current levels -- or above, especially since Netflix looks likely to continue performing well. The streaming specialist estimates $650 billion worth of revenue in its addressable market, of which it has captured only about 6%.
Netflix also accounts for less than 10% of television viewing time in every region, so there is massive whitespace ahead for the company. Even though the streaming industry has become substantially more competitive, Netflix has remained the undisputed leader, partly thanks to its brand name. Netflix's business also has a network effect. The more subscribers it has, the more data it can collect on viewer tastes and preferences, which it then uses to create more shows that people want to binge-watch.
Netflix's shows have been massively successful, a trend that should continue given the company's increasing subscribers, revenue, and earnings. Netflix's share price should continue to move in the right direction in the long run, and the company could choose to split its stock before too long. But stock splits don't change a company's value. So whether or not Netflix goes that route, the stock is a terrific pick for growth-oriented investors.
Booking Holdings is a leading provider of vacation accommodations, from flights and hotels (or rentals, for those who prefer that) to transportation and activities. Though business wasn't good in the early pandemic years, the company has rebounded strongly since and has generally posted excellent financial results. Investors have responded by bidding up Booking Holdings' already expensive stock price. As of this writing, the company's shares are trading hands for about $4,693 apiece.
Most people can't afford to dish out that much money to acquire a single share of a corporation. Booking Holdings has conducted a stock split before, but that was in 2003 -- more than 20 years ago. The company is arguably overdue for another stock split. If it doesn't resort to that, investors will have to rely on fractional shares, which would still be a great move considering Booking Holdings' prospects. The company also benefits from a network effect. The more hotels, vacation rentals, and car rental companies join its platform, the more attractive it becomes to travelers, and vice-versa.
Some of the company's competitors, including Airbnb, benefit from the same dynamic, but Booking Holdings is the leader in the field. Besides its namesake website, it owns other famous brands such as Priceline and Kayak. Booking Holdings has also been improving its platform through various artificial intelligence (AI)-powered initiatives, including an AI trip planner that makes its platform even more valuable.
Lastly, there should be plenty of long-term growth potential for Booking Holdings. Travel demand might fluctuate somewhat due to economic factors, but it remains one of people's favorite activities. That shouldn't change soon.
Booking Holdings sees a bright future ahead, especially in some regions, such as Asia, given its size and growth potential. That and other growth opportunities should allow Booking Holdings to perform well over the long run. Investors shouldn't wait for a hypothetical stock split to invest in this company.
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