The FAANG group of mega cap stocks produced hefty returns for investors throughout 2020. The team, whose members consist of Facebook (NASDAQ:FB), Amazon.com (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOGL) benefited greatly from the COVID-19 pandemic as folks sheltering in place used their devices to shop, work as well as entertain online.
During the older year alone, Facebook gained thirty five %, Amazon rose 78 %, Apple was up 86 %, Netflix saw a 61 % boost, and Google’s parent Alphabet is up 32 %. As we enter 2021, investors are thinking in case these tech titans, optimized for lockdown commerce, will provide similar or even a lot better upside this season.
From this number of 5 stocks, we are analyzing Netflix today – a high performer throughout the pandemic, it’s today facing a unique competitive threat.
Stay-at-Home Appeal Diminishing?
Netflix has been one of probably the strongest equity performers of 2020. The company and its stock benefited from the stay-at-home atmosphere, spurring desire for its streaming service. The stock surged aproximatelly 90 % off the low it hit on March 16, until mid October.
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Nevertheless, during the past 3 months, that rally has run out of steam, as the company’s key rival Disney (NYSE:DIS) gained a great deal of ground in the streaming battle.
Within a year of the launch of its, the DIS’s streaming service, Disney+, today has greater than 80 million paid subscribers. That is a tremendous jump from the 57.5 million it found to the summer quarter. Which compares with Netflix’s 195 million members as of September.
These successes by Disney+ emerged at exactly the same time Netflix has been reporting a slowdown in its subscriber growth. Netflix in October discovered that it included 2.2 million subscribers in the third quarter on a net foundation, short of the forecast of its in July of 2.5 million new subscriptions for the period.
But Disney+ is not the sole headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division is in the midst of an equivalent restructuring as it is focused on its new HBO Max streaming wedge. As well, Comcast’s (NASDAQ:CMCSA) NBCUniversal is realigning its entertainment operations to give priority to the new Peacock of its streaming service.
Negative Cash Flows
Apart from growing competition, the thing that makes Netflix a lot more vulnerable among the FAANG class is the company’s small cash position. Given that the service spends a great deal to develop the extraordinary shows of its and capture international markets, it burns a good deal of cash each quarter.
In order to improve its cash position, Netflix raised prices due to its most popular plan throughout the last quarter, the second time the company has been doing so in as a long time. The move might possibly prove counterproductive in an atmosphere where men and women are losing jobs and competition is heating up. In the past, Netflix price hikes have led to a slowdown in subscriber development, particularly in the more-mature U.S. market.
Benchmark analyst Matthew Harrigan previous week raised very similar fears in the note of his, warning that subscriber advancement might slow in 2021:
“Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now obviously broken down as one) confidence in its streaming exceptionalism is fading somewhat even as two) the stay-at-home trade might be “very 2020″ even with a bit of concern over just how U.K. and South African virus mutations could have an effect on Covid-19 vaccine efficacy.”
The 12 month price target of his for Netflix stock is $412, about 20 % below its current level.
Netflix’s stay-at-home appeal made it both one of the best mega hats as well as tech stocks in 2020. But as the competition heats up, the business needs to show it continues to be the high streaming choice, and it is well positioned to protect its turf.
Investors appear to be taking a break from Netflix stock as they wait to find out if that can happen.