The FAANG team of mega cap stocks developed 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 people sheltering in its place used their devices to shop, work and entertain online.
Of the older year alone, Facebook gained 35 %, Amazon rose 78 %, Apple was up eighty six %, Netflix saw a sixty one % boost, and 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 bring very similar or much more effectively upside this year.
From this particular group of five stocks, we’re analyzing Netflix today – a high-performer throughout the pandemic, it is now facing a unique competitive threat.
Stay-at-Home Appeal Diminishing?
Netflix has been one of the strongest equity performers of 2020. The business enterprise and its stock benefited from the stay-at-home atmosphere, spurring demand due to its streaming service. The stock surged aproximatelly ninety % from the minimal it hit on March 16, until mid October.
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Nonetheless, during the past three months, that rally has run out of steam, as the company’s key rival Disney (NYSE:DIS) received considerable ground of the streaming battle.
Within a year of its launch, the DIS’s streaming service, Disney+, now has greater than eighty million paid subscribers. That’s a significant jump from the 57.5 million it reported to the summer quarter. Which 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 growth of its. Netflix in October discovered it included 2.2 million members in the third quarter on a net basis, short of its forecast 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 can be found in the midst of an equivalent restructuring as it focuses primarily on its latest HBO Max streaming wedge. Too, Comcast’s (NASDAQ:CMCSA) NBCUniversal is realigning its entertainment operations to give priority to its new Peacock streaming service.
Negative Cash Flows
Apart from climbing competition, what makes Netflix much more weak among the FAANG class is the company’s tight cash position. Because the service spends a great deal to create 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 for its most popular plan throughout the final quarter, the next time the company did so in as a long time. The move could prove counterproductive in an atmosphere wherein individuals are losing jobs as well as competition is warming 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 last week raised very similar concerns into his note, warning that subscriber development may well slow in 2021:
“Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now clearly broken down as 1) trust in the streaming exceptionalism of its is fading relatively even as 2) the stay-at-home trade could be “very 2020″ in spite of a bit of concern over how U.K. and South African virus mutations could impact Covid 19 vaccine efficacy.”
His 12-month price target for Netflix stock is actually $412, about 20 % below the present level of its.
Netflix’s stay-at-home appeal made it both one of the greatest mega caps and tech stocks in 2020. But as the competition heats up, the business enterprise needs to show it is the top streaming choice, and that it is well-positioned to defend the turf of its.
Investors appear to be taking a break from Netflix stock as they hold out to find out if that can occur.