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The FAANG group of mega cap stocks produced hefty returns for investors during 2020.

The group, 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 their devices to shop, work and entertain online.

During the older year alone, Facebook gained thirty five %, Amazon rose 78 %, Apple was up eighty six %, Netflix saw a 61 % boost, as well as Google’s parent Alphabet is up thirty two %. As we enter 2021, investors are asking yourself in case these tech titans, optimized for lockdown commerce, will achieve very similar or even a lot better upside this year.

From this number of five stocks, we are analyzing Netflix today – a high-performer throughout the pandemic, it is today facing a unique competitive threat.

Stay-at-Home Appeal Diminishing?
Netflix has been one of 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 about ninety % from the low it hit on March 16, until mid-October.

NFLX Weekly TTMNFLX Weekly TTM
Nonetheless, during the previous 3 weeks, that rally has run out of steam, as the company’s main rival Disney (NYSE:DIS) received a lot of ground in the streaming battle.

Within a year of its launch, 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 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 growth. Netflix in October reported that it added 2.2 million subscribers in the third quarter on a net schedule, short of its forecast in July of 2.5 million brand 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 is focused 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 the new Peacock of its streaming service.

Negative Cash Flows
Apart from climbing competition, what makes Netflix a lot more weak among the FAANG class is the company’s small cash position. Because the service spends a great deal to create its exclusive shows and capture international markets, it burns a great deal of money each quarter.

In order to improve its money position, Netflix raised prices because of its most popular plan during the very last quarter, the next time the company has done so in as several years. The action could prove counterproductive in an atmosphere where men and women are losing jobs and competition is heating 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 previous week raised similar issues in his note, warning that subscriber development could possibly slow in 2021:

Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now clearly broken down as 1) confidence in the streaming exceptionalism of its is actually fading somewhat even as two) the stay-at-home trade may be “very 2020″ despite having a bit of concern about how U.K. and South African virus mutations could impact Covid 19 vaccine efficacy.”

The 12 month price target of his for Netflix stock is $412, aproximatelly 20 % beneath its present level.

Bottom Line

Netflix’s stay-at-home appeal made it both one of the best mega caps as well as tech stocks in 2020. But as the competition heats up, the company must show that it is still the high streaming choice, and that it’s well-positioned to protect the turf of its.

Investors seem to be taking a rest from Netflix stock as they wait to see if that could occur.

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