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 people sheltering in position used their products to shop, work and entertain online.
Of the previous 12 months alone, Facebook gained 35 %, Amazon rose seventy eight %, Apple was up 86 %, Netflix discovered a sixty one % 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 provide very similar or even better upside this year.
From this particular group of 5 stocks, we are 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 business and its stock benefited from the stay-at-home atmosphere, spurring desire for its streaming service. The stock surged aproximatelly 90 % off the low it hit on March 16, until mid-October.
NFLX Weekly TTMNFLX Weekly TTM
Nonetheless, during the previous three weeks, that rally has run out of steam, as the company’s primary rival Disney (NYSE:DIS) received a great deal of ground of the streaming battle.
Within a year of the launch of its, 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 reported in the summer quarter. Which compares with Netflix’s 195 million members as of September.
These successes by Disney+ emerged at exactly the same time Netflix has been reporting a slowdown in the subscriber development of its. Netflix in October reported that it included 2.2 million subscribers in the third quarter on a net basis, short of its forecast in July of 2.5 million brand new subscriptions for the period.
But Disney+ isn’t the sole headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division can be found in the midst of a similar restructuring as it focuses on the new 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 climbing competition, what makes Netflix more weak among the FAANG group is the company’s tight cash position. Because the service spends a lot to develop its extraordinary shows and capture international markets, it burns a lot of money each quarter.
to be able to improve its cash position, Netflix raised prices due to its most popular plan during the final quarter, the second time the company did so in as many years. The action could prove counterproductive in an environment in which folks are losing jobs as well as competition is heating up. In the past, Netflix price hikes have led to a slowdown in subscriber growth, particularly in the more mature U.S. market.
Benchmark analyst Matthew Harrigan last week raised similar fears in his note, warning that subscriber development could possibly slow in 2021:
“Netflix’s trading correlation with various other prominent NASDAQ 100 and FAAMG names has now obviously broken down as 1) trust in the streaming exceptionalism of its is actually fading relatively even as 2) the stay-at-home trade might be “very 2020″ in spite of a little concern over just how U.K. and South African virus mutations might have an effect on Covid 19 vaccine efficacy.”
The 12-month cost target of his for Netflix stock is $412, about 20 % below its present level.
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 company must show that it continues to be the high streaming option, and that it is well-positioned to protect its turf.
Investors appear to be taking a rest from Netflix stock as they wait to see if that will happen.