The FAANG group of mega cap stocks manufactured hefty returns for investors during 2020. The group, 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 men and women sheltering in its place used the products of theirs to shop, work as well as entertain online.
During the past year alone, Facebook gained thirty five %, Amazon rose 78 %, Apple was up 86 %, Netflix discovered a 61 % boost, and Google’s parent Alphabet is up 32 %. As we enter 2021, investors are actually thinking if these tech titans, enhanced for lockdown commerce, will provide similar or even better upside this season.
By this particular number of 5 stocks, we are analyzing Netflix today – a high performer during the pandemic, it’s today facing a distinctive 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 atmosphere, spurring need due to its streaming service. The stock surged about ninety % off the reduced it hit on March sixteen, until mid-October.
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However, during the previous three weeks, that rally has run out of steam, as the company’s key rival Disney (NYSE:DIS) received considerable ground in the streaming fight.
Within a year of the launch of its, the DIS’s streaming service, Disney+, today has greater than eighty million paid subscribers. That is a tremendous jump from the 57.5 million it reported in the summer quarter. Which compares with Netflix’s 195 million subscribers as of September.
These successes by Disney+ emerged at the identical time Netflix has been reporting a slowdown in the subscriber growth of its. Netflix in October discovered it included 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 sole headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division can be found in the midst of an equivalent restructuring as it concentrates on the new HBO Max of its streaming wedge. Also, Comcast’s (NASDAQ:CMCSA) NBCUniversal is realigning its entertainment businesses to give priority to its new Peacock streaming service.
Negative Cash Flows
Apart from growing competition, what makes Netflix more weak among the FAANG group is the company’s small cash position. Because the service spends a great deal to develop its exclusive shows and capture international markets, it burns a great deal of cash each quarter.
In order to enhance the cash position of its, Netflix raised prices because of its most popular program throughout the final quarter, the second time the company has been doing so in as many years. The action could prove counterproductive in an environment wherein people are losing jobs as well as competition is heating 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 last week raised very similar issues in the note of his, warning that subscriber growth could possibly slow in 2021:
“Netflix’s trading correlation with various other prominent NASDAQ 100 and FAAMG names has now clearly 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″ even with a bit of concern about just 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, about 20 % beneath its current level.
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 business enterprise has to show that it continues to be the high streaming choice, and that it’s well-positioned to defend its turf.
Investors appear to be taking a rest from Netflix stock as they delay to find out if that can occur.