The FAANG group of mega cap stocks manufactured hefty returns for investors throughout 2020. The group, whose members include Facebook (NASDAQ:FB), Amazon.com (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOGL) benefited greatly from the COVID-19 pandemic as men and women sheltering in position used their products to shop, work and entertain online.
During the older 12 months alone, Facebook gained thirty five %, Amazon rose seventy eight %, Apple was up eighty six %, Netflix saw a 61 % boost, and Google’s parent Alphabet is actually up 32 %. As we enter 2021, investors are actually asking yourself if these tech titans, enhanced for lockdown commerce, will provide very similar or perhaps much more effectively upside this year.
From this group of 5 stocks, we’re analyzing Netflix today – a high-performer throughout the pandemic, it is now 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 the stock benefited from the stay-at-home atmosphere, spurring desire due to its streaming service. The stock surged about ninety % from the minimal 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) gained a great deal of ground of the streaming battle.
Within a year of the launch of its, the DIS’s streaming service, Disney+, today has greater than 80 million paid subscribers. That is a substantial 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+ arrived at the same time Netflix has been reporting a slowdown in its subscriber growth. Netflix in October reported it included 2.2 million subscribers in the third quarter on a net schedule, short of the forecast of its in July of 2.5 million brand new subscriptions for the period.
But Disney+ is not the only headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division can be found in the midst of an equivalent restructuring as it is focused on the latest HBO Max of its streaming platform. Too, 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 climbing competition, what makes Netflix much more vulnerable among the FAANG group is the company’s tight cash position. Because the service spends a great deal to create 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 due to its most popular plan during the final quarter, the second time the company has been doing so in as a long time. The action might possibly prove counterproductive in an environment in which folks are losing jobs and competition is heating up. In the past, Netflix price hikes have led to a slowdown in subscriber growth, particularly in the more mature U.S. market.
Benchmark analyst Matthew Harrigan last week raised similar concerns into his note, warning that subscriber growth could possibly slow in 2021:
“Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now obviously broken down as one) confidence in its streaming exceptionalism is actually fading relatively 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 impact Covid-19 vaccine efficacy.”
His 12-month cost target for Netflix stock is $412, about 20 % below its current level.
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 has to show it is the high streaming choice, and that it’s well positioned to defend its turf.
Investors appear to be taking a break from Netflix stock as they wait to find out if that can occur.