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 vastly from the COVID 19 pandemic as individuals sheltering in place used the devices of theirs to shop, work and entertain online.
Of the older 12 months alone, Facebook gained 35 %, Amazon rose seventy eight %, Apple was up eighty six %, Netflix saw a sixty one % 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, enhanced for lockdown commerce, will achieve very similar or perhaps much more effectively upside this year.
By this particular group of five stocks, we are analyzing Netflix today – a high performer throughout the pandemic, it’s now facing a distinctive competitive threat.
Stay-at-Home Appeal Diminishing?
Netflix has been one of the strongest equity performers of 2020. The business and its stock benefited from the stay-at-home environment, spurring desire due to its streaming service. The stock surged aproximatelly ninety % from the low it hit on March 16, until mid-October.
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Nonetheless, during the past 3 months, that rally has run out of steam, as the company’s main rival Disney (NYSE:DIS) received a great deal of ground in the streaming fight.
Within a year of its launch, the DIS’s streaming service, Disney+, now has more than eighty million paid subscribers. That’s a substantial jump from the 57.5 million it found in the summer quarter. Which compares with Netflix’s 195 million subscribers as of September.
These successes by Disney+ came at the identical time Netflix has been reporting a slowdown in the subscriber development of its. Netflix in October found it included 2.2 million subscribers in the third quarter on a net schedule, light of the forecast of its 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 can be found in the midst of a similar restructuring as it focuses on its latest HBO Max streaming platform. Too, 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 climbing competition, what makes Netflix a lot more vulnerable among the FAANG team is the company’s small money position. Because the service spends a lot to create its extraordinary shows and shoot international markets, it burns a good deal of cash each quarter.
To enhance its cash position, Netflix raised prices due to its most popular program during the last quarter, the next time the company did so in as many years. The move might prove counterproductive in an atmosphere wherein individuals are losing jobs as well as competition is heating up. In the past, Netflix priced hikes have led to a slowdown in subscriber development, particularly in the more-mature U.S. market.
Benchmark analyst Matthew Harrigan last week raised similar fears in his note, warning that subscriber growth might slow in 2021:
“Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now clearly broken down as one) confidence in the streaming exceptionalism of its is fading relatively even as two) the stay-at-home trade could be “very 2020″ even with a bit of concern about just how U.K. and South African virus mutations can impact Covid-19 vaccine efficacy.”
His 12 month cost target for Netflix stock is actually $412, about 20 % below its current level.
Bottom Line
Netflix’s stay-at-home appeal made it both one of the greatest mega hats and tech stocks in 2020. But as the competition heats up, the business enterprise should show it is the high streaming choice, and it’s well positioned to protect its turf.
Investors seem to be taking a rest from Netflix stock as they wait to find out if that can occur.