The Netflix (NFLX) stock price roared to all-time highs in early trading on Wednesday, approaching the $690 level as of this writing. Considering the remarkable year NFLX has had, it’s nothing out of the ordinary.
Up more than 100% in 2015, NFLX is the best performing stock in the S&P 500 this year — by a wide margin. And considering the savvy moves Netflix continues to make, this stock has more room to run.
The advantages of being a first-mover in web-based streaming video have proven lucrative, and Netflix isn’t ready to cede that advantage just yet.
Here are three reasons NFLX stock is primed to continue its rally — and why it’ll be crossing the $750 level before you know it.
Massive Stock Split
Striving to make shares more accessible to a wider range of investors, NFLX shareholders approved a dramatic increase in the number of shares the company is allowed to issue. At Tuesday’s annual meeting, shareholders voted to increase the share authorization to 5 billion, a nearly 30-fold increase from the 170 million currently allowed for.
These are the first steps towards going through with a stock split that has been widely anticipated since April, when the company submitted a proxy statement aiming to boost the share count.
At around $665 per share, many individual investors may feel priced out of NFLX stock. The solution? Split that bad boy 25-to-1. Suddenly, NFLX stock is just $27.50 a pop.
While it won’t change the underlying value of the company, it will likely boost demand. The rally from $27.50 per share to $30 per share seems much more attainable than a rally from $690 to $750 … even though the percentage gains are the same.
It may be financial shenanigans, but who cares? Just ask Apple (AAPL) stock how the decision to do a 7-to-1 stock split worked out — shares are up nearly 40% in the first year since its decision.
Brad Pitt to the Rescue
Part of what sets Netflix apart is, increasingly, its original content. With hit shows like Orange is the New Black and House of Cards to its name, Netflix has been able to rake in subscribers at a rapid pace, despite the best efforts of Amazon (AMZN) and much to the dismay of traditional cable companies like Comcast (CMCSA) and Time Warner Cable (TWC).
NFLX stock rallied 12% higher after the number of U.S. subscribers increased 16% year-over-year and international subscriptions jumped 65%.
Hoping to keep subscribers happy and hopefully attract some new ones, NFLX inked a $30 million deal to gain distribution rights for an upcoming Brad Pitt movie, War Machine. Expected in 2017, the film will be a satirical war comedy based on a bestselling book by Michael Hastings which documents behind-the-scenes military excesses during the War in Afghanistan.
With lifetime gross box office receipts of more than $2.6 billion, Brad Pitt has proven wildly popular at the box office, so don’t be surprised if some of his die-hard fans will subscribe to Netflix just for him.
Courting International Expansion
Perhaps the most compelling reason NFLX is primed to keep setting record highs is its hyper-focus on international growth. As I mentioned earlier, international subscriber gains were absolutely bonkers in the first-quarter, jumping 14.2% quarter-over-quarter and 65% year-over-year.
In an effort to keep subscriber growth robust, Netflix is adding a plethora of new content for Spanish-speakers. From telenovas to popular Mexican comedies, NFLX has added quite a bit of new content for Spanish-speakers in June already.
Spanish is the second-most spoken language in the world, and expanding content for Spanish-speakers will help more than just international numbers. As the Hispanic population in the U.S. grows by leaps and bounds, it’s important to stoke gains in the U.S. subscriber base, as well.
With 40 million U.S. subscribers at last count and with the U.S. Hispanic population at more than 54 million, the potential domestic subscriber gains are staggering. Now imagine the potential growth across the rest of the world.
All of these factors add up to make NFLX stock one hard-to-resist investment.
As of this writing, John Divine was long shares of AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
