The FAANG team of mega cap stocks developed hefty returns for investors throughout 2020. The team, 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 its place used the products of theirs to shop, work and entertain online.
Of the previous 12 months alone, Facebook gained 35 %, Amazon rose 78 %, Apple was up eighty six %, Netflix saw a 61 % boost, and Google’s parent Alphabet is actually up 32 %. As we enter 2021, investors are asking yourself if these tech titans, optimized for lockdown commerce, will achieve similar or perhaps much more effectively upside this year.
By this particular group of five stocks, we’re analyzing Netflix today – a high performer during the pandemic, it is now facing a unique competitive threat.
Stay-at-Home Appeal Diminishing?
Netflix has been one of probably the strongest equity performers of 2020. The business enterprise and its stock benefited from the stay-at-home environment, spurring need because of its streaming service. The stock surged about ninety % off the minimal it hit on March 16, until mid-October.
NFLX Weekly TTMNFLX Weekly TTM
However, during the previous three weeks, that rally has run out of steam, as the company’s primary rival Disney (NYSE:DIS) acquired a great deal of ground in the streaming fight.
Within a year of the launch of its, the DIS’s streaming service, Disney+, now has greater than 80 million paid subscribers. That’s a significant jump from the 57.5 million it found to the summer quarter. That compares with Netflix’s 195 million subscribers as of September.
These successes by Disney+ arrived at exactly the same time Netflix has been reporting a slowdown in its subscriber growth. Netflix in October found it included 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 sole headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division is in the midst of an equivalent restructuring as it concentrates on its new HBO Max streaming wedge. 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, the thing that makes Netflix a lot more vulnerable among the FAANG team is the company’s tight cash position. Because the service spends a great deal to develop its exclusive shows and shoot international markets, it burns a good deal of money each quarter.
To enhance the money position of its, Netflix raised prices for its most popular plan throughout the final quarter, the second time the company has been doing so in as a long time. The move might prove counterproductive in an atmosphere wherein people are losing jobs and competition is warming 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 last week raised similar concerns into the note of his, warning that subscriber advancement might 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 two) the stay-at-home trade may be “very 2020″ in spite of a bit of concern about 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 twenty % beneath the current level of its.
Netflix’s stay-at-home appeal made it both one of the best 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 it’s well positioned to protect its turf.
Investors seem to be taking a rest from Netflix stock as they wait to determine if that could occur.