The FAANG group of mega cap stocks developed 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 greatly from the COVID-19 pandemic as folks sheltering in its place used the devices of theirs to shop, work and entertain online.
During the past year alone, Facebook gained thirty five %, Amazon rose seventy eight %, Apple was up 86 %, Netflix saw a 61 % boost, along with Google’s parent Alphabet is actually up thirty two %. As we enter 2021, investors are wondering in case these tech titans, enhanced for lockdown commerce, will achieve very similar or perhaps even better upside this season.
From this particular group of five stocks, we’re analyzing Netflix today – a high-performer during the pandemic, it is 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 enterprise and its stock benefited from the stay-at-home atmosphere, spurring demand due to its streaming service. The stock surged about ninety % off the minimal it hit on March 16, until mid-October.
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Nevertheless, during the previous three months, that rally has run out of steam, as the company’s main rival Disney (NYSE:DIS) received a lot of ground of the streaming fight.
Within a year of its launch, the DIS’s streaming service, Disney+, today has greater than 80 million paid subscribers. That is a significant 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 same 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, 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 can be found in the midst of a comparable restructuring as it focuses primarily on its new HBO Max streaming wedge. Too, 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 climbing competition, the thing that makes Netflix much more vulnerable among the FAANG class is the company’s small cash position. Given that the service spends a lot to create its exclusive shows and shoot international markets, it burns a great deal of cash each quarter.
To enhance its money position, Netflix raised prices for its most popular plan during the final quarter, the second time the company has been doing so in as many years. The move might prove counterproductive in an atmosphere wherein folks are losing jobs and competition is warming up. In the past, Netflix price hikes have led to a slowdown in subscriber growth, especially in the more mature U.S. market.
Benchmark analyst Matthew Harrigan last week raised similar concerns into his note, warning that subscriber growth may well slow in 2021:
“Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now clearly broken down as one) trust in its streaming exceptionalism is actually fading relatively even as two) the stay-at-home trade could be “very 2020″ even with some concern over how U.K. and South African virus mutations might affect Covid 19 vaccine efficacy.”
His 12 month cost target for Netflix stock is actually $412, aproximatelly twenty % below its present level.
Netflix’s stay-at-home appeal made it both one of the best mega hats as well as tech stocks in 2020. But as the competition heats up, the business has to show it is the top streaming option, and that it’s well-positioned to protect its turf.
Investors appear to be taking a break from Netflix stock as they delay to find out if that can occur.