The FAANG group of mega cap stocks developed hefty returns for investors during 2020. The team, whose members include 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 individuals sheltering in place used the products of theirs to shop, work as well as entertain online.
Of the previous year alone, Facebook gained thirty five %, Amazon rose 78 %, Apple was up 86 %, Netflix discovered a 61 % boost, and Google’s parent Alphabet is up 32 %. As we enter 2021, investors are wondering if these tech titans, enhanced for lockdown commerce, will achieve similar or much more effectively upside this season.
From this particular number of 5 stocks, we’re analyzing Netflix today – a high performer during the pandemic, it is now facing a distinctive competitive threat.
Stay-at-Home Appeal Diminishing?
Netflix has been one of probably the strongest equity performers of 2020. The company and the stock benefited from the stay-at-home atmosphere, spurring demand for its streaming service. The stock surged about 90 % from the reduced it hit on March 16, until mid-October.
NFLX Weekly TTMNFLX Weekly TTM
Nevertheless, during the previous 3 weeks, that rally has run out of steam, as the company’s key rival Disney (NYSE:DIS) acquired a great deal of ground of the streaming fight.
Within a year of the launch of its, the DIS’s streaming service, Disney+, today has more than eighty million paid subscribers. That’s a significant jump from the 57.5 million it found to the summer quarter. That compares with Netflix’s 195 million subscribers as of September.
These successes by Disney+ came at the same time Netflix has been reporting a slowdown in the subscriber development of its. Netflix in October discovered that it added 2.2 million subscribers in the third quarter on a net basis, light 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 is within the midst of a similar restructuring as it focuses on the latest HBO Max of its streaming platform. Too, Comcast’s (NASDAQ:CMCSA) NBCUniversal is realigning its entertainment businesses to give priority to its new Peacock streaming service.
Negative Cash Flows
Apart from rising competition, what makes Netflix a lot more vulnerable among the FAANG class is the company’s tight money position. Because the service spends a great deal to create the exclusive shows of its and capture international markets, it burns a great deal of cash each quarter.
In order to enhance its money position, Netflix raised prices due to its most popular plan during the last quarter, the next time the company did so in as a long time. The move might prove counterproductive in an environment where folks are losing jobs as well as competition is warming up. In the past, Netflix priced hikes have led to a slowdown in subscriber growth, especially in the more mature U.S. market.
Benchmark analyst Matthew Harrigan last week raised very similar issues into the note of his, warning that subscriber advancement may well slow in 2021:
“Netflix’s trading correlation with various other prominent NASDAQ 100 and FAAMG names has now obviously broken down as 1) 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 about how U.K. and South African virus mutations could impact Covid 19 vaccine efficacy.”
The 12-month cost target of his for Netflix stock is $412, about twenty % below its current level.
Netflix’s stay-at-home appeal made it both one of the best mega caps and tech stocks in 2020. But as the competition heats up, the company should show that it continues to be the high streaming option, and it’s well positioned to defend its turf.
Investors appear to be taking a rest from Netflix stock as they delay to find out if that could happen.