The FAANG group of mega cap stocks produced 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 immensely from the COVID-19 pandemic as folks sheltering in position used the devices of theirs to shop, work as well as entertain online.
Of the previous year alone, Facebook gained 35 %, Amazon rose 78 %, Apple was up 86 %, Netflix discovered a 61 % boost, as well as Google’s parent Alphabet is actually up 32 %. As we enter 2021, investors are actually wondering in case these tech titans, optimized for lockdown commerce, will bring very similar or even even better upside this season.
By this particular group of 5 stocks, we’re analyzing Netflix today – a high-performer throughout the pandemic, it’s 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 and the stock benefited from the stay-at-home atmosphere, spurring demand because of its streaming service. The stock surged about 90 % off the minimal it hit on March sixteen, until mid October.
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Nevertheless, during the past 3 weeks, that rally has run out of steam, as the company’s main rival Disney (NYSE:DIS) gained a great deal of ground of the streaming fight.
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 found in the summer quarter. Which compares with Netflix’s 195 million subscribers as of September.
These successes by Disney+ came at exactly the same time Netflix has been reporting a slowdown in its subscriber development. Netflix in October found that it added 2.2 million subscribers 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 similar restructuring as it is focused on the latest HBO Max of its streaming platform. As well, Comcast’s (NASDAQ:CMCSA) NBCUniversal is realigning its entertainment businesses to give priority to the new Peacock of its streaming service.
Negative Cash Flows
Apart from rising competition, what makes Netflix more weak among the FAANG group is the company’s small cash position. Given that the service spends a lot to develop the exclusive shows of its and capture international markets, it burns a good deal of money each quarter.
In order to enhance the money position of its, Netflix raised prices due to its most popular program during the last quarter, the next time the company has done so in as many years. The move might possibly prove counterproductive in an environment in which men and women are losing jobs and competition is warming up. In the past, Netflix price hikes have led to a slowdown in subscriber development, especially in the more mature U.S. market.
Benchmark analyst Matthew Harrigan previous week raised similar concerns in his note, warning that subscriber advancement may well slow in 2021:
“Netflix’s trading correlation with various other prominent NASDAQ 100 and FAAMG names has now clearly broken down as 1) confidence in its streaming exceptionalism is actually fading somewhat even as 2) the stay-at-home trade may be “very 2020″ even with some concern over just how U.K. and South African virus mutations can affect Covid-19 vaccine efficacy.”
His 12-month price target for Netflix stock is actually $412, about 20 % beneath its current level.
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 enterprise should show that it is still the top streaming choice, and that it is well positioned to protect its turf.
Investors appear to be taking a rest from Netflix stock as they wait to see if that will occur.