The FAANG group of mega cap stocks developed hefty returns for investors throughout 2020. The group, 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 people sheltering into position used their devices to shop, work and entertain online.
Of the past year alone, Facebook gained 35 %, Amazon rose 78 %, Apple was up eighty six %, Netflix discovered a 61 % boost, and Google’s parent Alphabet is up 32 %. As we enter 2021, investors are actually wondering if these tech titans, enhanced for lockdown commerce, will achieve very similar or even a lot better upside this season.
From this group of five stocks, we’re analyzing Netflix today – a high performer during 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 company and its stock benefited from the stay-at-home atmosphere, spurring desire because of its streaming service. The stock surged aproximatelly 90 % from the reduced it hit on March sixteen, until mid October.
NFLX Weekly TTMNFLX Weekly TTM
But, during the previous three months, that rally has run out of steam, as the company’s key 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+, today has more than eighty million paid subscribers. That is a tremendous jump from the 57.5 million it found to the summer quarter. That compares with Netflix’s 195 million members as of September.
These successes by Disney+ arrived at the identical time Netflix has been reporting a slowdown in the subscriber development of its. Netflix in October reported that it included 2.2 million members in the third quarter on a net basis, short 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 is within the midst of a similar restructuring as it is focused on the latest HBO Max of its streaming platform. Too, Comcast’s (NASDAQ:CMCSA) NBCUniversal is actually realigning its entertainment businesses to give priority to the new Peacock of its streaming service.
Negative Cash Flows
Apart from rising competition, what makes Netflix much more vulnerable among the FAANG group is the company’s small cash position. Given that the service spends a lot to develop the exclusive shows of its and capture international markets, it burns a lot of money each quarter.
To enhance its cash 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 individuals are losing jobs and competition is heating up. In the past, Netflix price hikes have led to a slowdown in subscriber growth, especially in the more mature U.S. market.
Benchmark analyst Matthew Harrigan previous week raised similar concerns into the note of his, warning that subscriber development might slow in 2021:
“Netflix’s trading correlation with various 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 little concern over just how U.K. and South African virus mutations could affect Covid-19 vaccine efficacy.”
The 12-month price target of his for Netflix stock is $412, aproximatelly 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 company needs to show it continues to be the high streaming choice, and it’s well positioned to protect the turf of its.
Investors appear to be taking a break from Netflix stock as they wait to find out if that could happen.