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The FAANG team of mega cap stocks produced 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 folks sheltering into position used their products to shop, work as well as entertain online.

During the previous year alone, Facebook gained thirty five %, Amazon rose seventy eight %, Apple was up eighty six %, Netflix saw a sixty one % boost, along with Google’s parent Alphabet is actually up 32 %. As we enter 2021, investors are asking yourself if these tech titans, enhanced for lockdown commerce, will provide very similar or perhaps even better upside this season.

From this group of 5 stocks, we are analyzing Netflix today – a high performer during the pandemic, it is today facing a distinctive competitive threat.

Stay-at-Home Appeal Diminishing?
Netflix has been one of probably the strongest equity performers of 2020. The business and its stock benefited from the stay-at-home environment, spurring desire because of its streaming service. The stock surged about 90 % off the minimal it hit on March 16, until mid-October.

NFLX Weekly TTMNFLX Weekly TTM
Nonetheless, during the previous 3 months, that rally has run out of steam, as the company’s primary rival Disney (NYSE:DIS) gained a lot of ground in 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 is 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 development of its. Netflix in October found it added 2.2 million subscribers in the third quarter on a net schedule, light of the forecast of its 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 is within the midst of an equivalent restructuring as it focuses on its latest HBO Max streaming platform. As well, Comcast’s (NASDAQ:CMCSA) NBCUniversal is realigning its entertainment businesses to give priority to its new Peacock streaming service.

Negative Cash Flows
Apart from rising competition, what makes Netflix more vulnerable among the FAANG class is the company’s small cash position. Given that the service spends a lot to develop its extraordinary shows and capture international markets, it burns a good deal of money each quarter.

to be able to improve its cash position, Netflix raised prices because of its most popular program throughout the final quarter, the second time the company did so in as several years. The action might prove counterproductive in an atmosphere wherein folks are losing jobs as well as competition is warming up. In the past, Netflix price hikes have led to a slowdown in subscriber development, particularly in the more mature U.S. market.

Benchmark analyst Matthew Harrigan previous week raised similar fears in the note of his, 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 one) confidence in the streaming exceptionalism of its is actually fading somewhat even as two) the stay-at-home trade could be “very 2020″ in spite of some concern over how U.K. and South African virus mutations might affect Covid-19 vaccine efficacy.”

His 12 month price target for Netflix stock is actually $412, about 20 % below the present level of its.

Bottom Line

Netflix’s stay-at-home appeal made it both one of the best mega caps and tech stocks in 2020. But as the competition heats up, the business should show that it is still the high streaming option, and that it’s well-positioned to defend the turf of its.

Investors appear to be taking a rest from Netflix stock as they delay to find out if that can occur.

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