Prediction: 2 great companies that can start 2025 with a historic stock split announcement

As the final bell rang for 2024, optimists had plenty to smile about. Over the course of the year the Dow Jones Industrial Average, S&P 500And Nasdaq Composite all rose to multiple record highs.

Catalysts abounded: higher-than-expected corporate earnings, Donald Trump’s victory in November (stocks soared during Trump’s first term in the White House), and the artificial intelligence (AI) revolution that roiled stock markets. But don’t overlook the significance of the stock split euphoria that has driven stocks higher over the last year.

Where can you invest $1,000 now? Our team of analysts just revealed what they think it is The 10 best stocks to buy immediately. See the 10 stocks »

Image source: Getty Images.

Stock split euphoria is spreading on Wall Street

A stock split allows a publicly traded company to cosmetically change its stock price and the number of shares outstanding by the same factor. These changes are cosmetic in the sense that they have no impact on a company’s market capitalization or its underlying operating performance.

Splits come in two varieties, and investors prefer one significantly more than the other. Reverse splits, which are not overly popular, involve increasing a company’s stock price, often with the goal of maintaining its listing on a major stock exchange. This type of division is generally carried out from a position of operational weakness.

On the other hand, investors flock to companies that do stock splits. A forward split lowers a company’s stock price to make it more nominally affordable to everyday investors who don’t have access to purchasing fractional shares through their brokers.

Statistically speaking, forward splits have a knack for outperformance. Data from Bank of America Global Research has found that companies that conducted this type of split achieved an average return of 25.4% in the 12 months following their announcements since 1980. By comparison, the S&P 500 delivered a more modest annual return of 11.9% over the same periods.

In 2024, more than a dozen well-known companies conducted stock splits, and all but one were stock splits. Considering how well stock split stocks perform, investors are always on the lookout for the next big announcement.

What follows are two great companies that can start 2025 off with a bang with a historic stock split announcement.

Metaplatforms

Although there are more than a dozen publicly traded companies with share prices above $1,000, many of these companies have exceptionally high levels of institutional ownership – and large investors don’t need a lower share price to continue investing. This is why I believe social media is a juggernaut Metaplatforms (NASDAQ:META)which only has 72% institutional ownership, is the most logical candidate to start 2025 with a stock split announcement.

While Meta’s future is all about AI and the metaverse, it’s important to recognize the importance of the company’s world-class social media assets. In the first nine months of 2024, 98% of Meta’s $116.2 billion in revenue was attributed to advertising.

Meta is the parent company of the most popular social media site Facebook, as well as Instagram, WhatsApp, Threads and Facebook Messenger. In the September quarter, the company’s family of apps attracted 3.29 billion users to its websites daily. Since no other social media company comes particularly close to Meta in terms of daily active users, maintaining premium ad pricing power is often easy.

In addition, Meta benefits from the non-linearity of the economic cycle. In other words, periods of economic recovery tend to last significantly longer than recessions. This means that companies spend much more time expanding their marketing budgets than defending themselves during times of economic turmoil. As the US economy grows over time, Meta’s advertising revenue should also grow.

But this company also relies on AI to drive its growth. In January 2024, Meta announced plans to purchase 350,000 Hopper (H100) chips Nvidia for an expected cost of more than $10 billion. These graphics processing units (GPUs) are used to train Meta’s Llama 3 AI model, build digital assistants, and power other aspects of its business, including promoting businesses more efficiently.

One of the reasons Meta is able to invest so aggressively in these future growth initiatives is its exceptional cash flow and liquid balance sheet. The company has nearly $71 billion in cash, cash equivalents and marketable securities and averages more than $21 billion in net operating funds per quarter. This allows CEO Mark Zuckerberg to take risks that few other companies can.

With Meta stock surpassing $600 per share multiple times in the last six weeks, this seems like the ideal time for the company’s board to announce its first-ever stock split.

Image source: Getty Images.

Netflix

The other great company that can start 2025 with a historic stock split announcement is none other than FAANG stock Netflix (NASDAQ: NFLX). During Netflix’s last stock split – a 7-for-1 forward split on July 15, 2015 – shares traded at around $700. At the closing bell on January 14th, Netflix shares were trading at $828.40, indicating an even larger (i.e. historical) split factor.

Similar to Meta, Netflix is ​​successful because of its clear competitive advantages. While it’s far from alone among streaming services, Netflix is ​​the first streaming stock to prove that direct-to-consumer content can be a profitable operating model. Netflix ended the September quarter with approximately 282.7 million global paid streaming memberships.

Not only has Netflix consistently been profitable in an environment where even legacy media spends big and comes up short, but it has also won over audiences with its original content. No streaming service comes close to the depth of its original shows, which include these, among others Squid game, WednesdayAnd Stranger Things.

Netflix’s international push is also paying off. In the second half of the previous decade, Netflix was constantly wasting money to expand overseas and expand its content library. But over the last four years, the company’s free cash flow (FCF) has shifted significantly into the positive. Last year ended September 30, it generated more than $7.1 billion in FCF.

The company’s out-of-the-box innovation also works wonders. In November 2022, Netflix introduced a lower-cost ad-supported streaming tier to address slower subscriber growth. Less than two years later, this ad-supported tier has reached 70 million global active users. The ability to pull levers and maintain strong subscription pricing power is a recipe for increasingly higher operating margins over time.

Finally, announcing a stock split on a large scale (e.g. 8-for-1 or 10-for-1) could divert attention from Netflix’s premium valuation. While a company with sustainable competitive advantages should be valued at a premium, Netflix’s multiple of 37 times next year’s cash flow and 35 times next year’s earnings is quite a stretch in a historically expensive stock market.

Should you invest $1,000 in Meta Platforms now?

Before you buy Meta Platforms stock, consider the following:

The Motley Fool Stock Advisor The analyst team has just identified what they think this is The 10 best stocks so investors can buy it now… and Meta Platforms wasn’t one of them. The ten stocks that made the cut could deliver huge returns in the years to come.

Think about when Nvidia created this list on April 15, 2005… if you have $1,000 invested at the time of our recommendation, You would have $807,495!*