The FAANG team of mega cap stocks produced hefty returns for investors during 2020. The team, 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 and entertain online.
During the past year alone, Facebook gained thirty five %, Amazon rose 78 %, Apple was up 86 %, Netflix discovered a 61 % boost, as well as Google’s parent Alphabet is up 32 %. As we enter 2021, investors are actually wondering if these tech titans, optimized for lockdown commerce, will provide very similar or even a lot better upside this year.
From this particular group of 5 stocks, we’re analyzing Netflix today – a high performer throughout the pandemic, it’s today 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 environment, spurring need for its streaming service. The stock surged aproximatelly ninety % from the low it hit on March sixteen, until mid October.
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Nevertheless, during the past three months, that rally has run out of steam, as the company’s main rival Disney (NYSE:DIS) received a lot of ground in the streaming battle.
Within a year of its launch, the DIS’s streaming service, Disney+, now has more than 80 million paid subscribers. That’s a tremendous jump from the 57.5 million it reported in the summer quarter. That 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 reported it included 2.2 million subscribers in the third quarter on a net schedule, light of its forecast in July of 2.5 million new subscriptions for the period.
But Disney+ is not the only headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division is in the midst of an equivalent restructuring as it focuses on its new HBO Max streaming wedge. As well, Comcast’s (NASDAQ:CMCSA) NBCUniversal is realigning its entertainment operations to give priority to its new Peacock streaming service.
Negative Cash Flows
Apart from growing competition, the thing that makes Netflix a lot more weak among the FAANG team is the company’s tight cash position. Given that the service spends a great deal to develop the extraordinary shows of its and capture international markets, it burns a great deal of money each quarter.
to be able to improve its money position, Netflix raised prices because of its most popular plan throughout the final quarter, the next time the company did so in as many years. The action could prove counterproductive in an atmosphere wherein people are losing jobs as well as competition is warming up. In the past, Netflix priced hikes have led to a slowdown in subscriber development, particularly in the more mature U.S. market.
Benchmark analyst Matthew Harrigan previous week raised very similar issues 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 clearly broken down as 1) trust in its streaming exceptionalism is fading relatively even as two) the stay-at-home trade could be “very 2020″ even with a bit of concern about how U.K. and South African virus mutations might affect Covid-19 vaccine efficacy.”
His 12 month cost target for Netflix stock is $412, aproximatelly 20 % beneath the present level of its.
Netflix’s stay-at-home appeal made it both one of the greatest mega caps as well as tech stocks in 2020. But as the competition heats up, the company must show it continues to be the top streaming option, and that it’s well-positioned to protect the turf of its.
Investors appear to be taking a rest from Netflix stock as they wait to determine if that will occur.