The FAANG team of mega cap stocks developed hefty returns for investors throughout 2020. The team, whose members include Facebook (NASDAQ:FB), Amazon.com (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOGL) benefited immensely from the COVID 19 pandemic as men and women sheltering in position used the products of theirs to shop, work and entertain online.
Of the older 12 months alone, Facebook gained thirty five %, Amazon rose seventy eight %, Apple was up eighty six %, Netflix saw a sixty one % boost, along with Google’s parent Alphabet is up thirty two %. As we enter 2021, investors are wondering in case these tech titans, enhanced for lockdown commerce, will achieve similar or much more effectively upside this year.
From this particular group of 5 stocks, we’re analyzing Netflix today – a high-performer during the pandemic, it is today facing a distinctive competitive threat.
Stay-at-Home Appeal Diminishing?
Netflix has been one of the strongest equity performers of 2020. The company and the stock benefited from the stay-at-home atmosphere, spurring need because of its streaming service. The stock surged aproximatelly ninety % from the reduced it hit on March 16, until mid October.
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Nonetheless, during the past three weeks, that rally has run out of steam, as the company’s main rival Disney (NYSE:DIS) acquired a great deal of ground in the streaming battle.
Within a year of the launch of its, the DIS’s streaming service, Disney+, now has more than 80 million paid subscribers. That’s a tremendous jump from the 57.5 million it reported to the summer quarter. Which compares with Netflix’s 195 million members as of September.
These successes by Disney+ came at the same time Netflix has been reporting a slowdown in its subscriber development. Netflix in October found it included 2.2 million subscribers in the third quarter on a net schedule, short of the forecast of its in July of 2.5 million new subscriptions for the period.
But Disney+ isn’t the only headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division can be found in the midst of a comparable restructuring as it concentrates on the new HBO Max of its streaming wedge. Too, Comcast’s (NASDAQ:CMCSA) NBCUniversal is actually realigning its entertainment operations to give priority to its new Peacock streaming service.
Negative Cash Flows
Apart from rising competition, the thing that makes Netflix a lot more weak among the FAANG class is the company’s tight money position. Given that the service spends a lot to create its exclusive shows and shoot international markets, it burns a good deal of cash each quarter.
to be able to improve the cash position of its, Netflix raised prices for its most popular program throughout the final quarter, the second time the company has done so in as a long time. The move might prove counterproductive in an atmosphere wherein people are losing jobs as well as competition is warming up. In the past, Netflix priced hikes have led to a slowdown in subscriber development, especially in the more-mature U.S. market.
Benchmark analyst Matthew Harrigan last week raised very similar fears in the note of his, warning that subscriber growth 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 2) the stay-at-home trade could be “very 2020″ in spite of a bit of concern about just how U.K. and South African virus mutations can affect Covid 19 vaccine efficacy.”
His 12 month price target for Netflix stock is actually $412, aproximatelly 20 % below its current level.
Netflix’s stay-at-home appeal made it both one of the greatest mega caps and tech stocks in 2020. But as the competition heats up, the business needs to show that it continues to be the high streaming choice, and that it is well positioned to defend its turf.
Investors seem to be taking a break from Netflix stock as they delay to find out if that can occur.