The FAANG team of mega cap stocks developed hefty returns for investors during 2020. The team, whose members consist of 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 folks sheltering in place used the devices of theirs to shop, work as well as entertain online.
Of the previous year alone, Facebook gained 35 %, Amazon rose seventy eight %, Apple was up 86 %, Netflix saw a 61 % boost, along with 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 provide similar or even even better upside this year.
From 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 the strongest equity performers of 2020. The business and the stock benefited from the stay-at-home atmosphere, spurring demand for its streaming service. The stock surged about 90 % off the minimal it hit on March sixteen, 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 of the streaming battle.
Within a year of its launch, the DIS’s streaming service, Disney+, today has greater than 80 million paid subscribers. That’s a tremendous 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+ arrived at the same time Netflix has been reporting a slowdown in the subscriber growth of its. Netflix in October discovered that it added 2.2 million members 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 only headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division is within the midst of a comparable restructuring as it is focused on its latest HBO Max streaming platform. As well, 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 growing competition, the thing that makes Netflix a lot more weak among the FAANG class is the company’s small money position. Given that the service spends a great deal to develop its exclusive shows and shoot international markets, it burns a good deal of cash each quarter.
In order to improve its cash position, Netflix raised prices for its most popular program during the final quarter, the second time the company has done so in as several years. The move might possibly prove counterproductive in an environment in which individuals are losing jobs as well as competition is warming up. In the past, Netflix priced 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 advancement may well slow in 2021:
“Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now obviously broken down as one) belief in the streaming exceptionalism of its is fading somewhat even as 2) the stay-at-home trade may be “very 2020″ despite having a bit of concern about how U.K. and South African virus mutations could affect Covid 19 vaccine efficacy.”
The 12-month cost target of his 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 hats as well as tech stocks in 2020. But as the competition heats up, the company must show that it is still the top streaming choice, and it is well-positioned to defend the turf of its.
Investors seem to be taking a rest from Netflix stock as they hold out to determine if that could occur.