The FAANG team 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 greatly from the COVID 19 pandemic as people sheltering in its place used the products of theirs to shop, work and entertain online.
Of the past 12 months alone, Facebook gained 35 %, Amazon rose seventy eight %, Apple was up eighty six %, Netflix saw a 61 % boost, along with Google’s parent Alphabet is actually up 32 %. As we enter 2021, investors are asking yourself if these tech titans, optimized for lockdown commerce, will achieve similar or perhaps a lot better upside this year.
From this group of five stocks, we are analyzing Netflix today – a high-performer throughout the pandemic, it’s today facing a distinctive competitive threat.
Stay-at-Home Appeal Diminishing?
Netflix has been one of probably the strongest equity performers of 2020. The company and its stock benefited from the stay-at-home environment, spurring demand due to its streaming service. The stock surged about 90 % off the low it hit on March sixteen, until mid-October.
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But, during the previous three months, that rally has run out of steam, as the company’s key rival Disney (NYSE:DIS) gained a lot 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’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+ emerged at exactly the same time Netflix has been reporting a slowdown in the subscriber development of its. Netflix in October discovered it added 2.2 million subscribers in the third quarter on a net foundation, 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 can be found in the midst of a comparable restructuring as it focuses primarily on its new HBO Max streaming platform. Too, Comcast’s (NASDAQ:CMCSA) NBCUniversal is realigning its entertainment businesses to give priority to its new Peacock streaming service.
Negative Cash Flows
Apart from climbing competition, what makes Netflix a lot more vulnerable among the FAANG class is the company’s small money position. Because the service spends a lot to create the exclusive shows of its and capture international markets, it burns a lot of cash each quarter.
to be able to enhance the money position of its, Netflix raised prices for its most popular program during the very last quarter, the second time the company has done so in as many years. The action could prove counterproductive in an environment where folks are losing jobs and competition is heating up. In the past, Netflix priced 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 issues into the note of his, warning that subscriber development could possibly slow in 2021:
“Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now obviously broken down as 1) belief in the streaming exceptionalism of its is actually fading relatively even as two) the stay-at-home trade might be “very 2020″ in spite of a little concern about just how U.K. and South African virus mutations could have an effect on Covid 19 vaccine efficacy.”
The 12-month cost target of his for Netflix stock is actually $412, about twenty % below its present level.
Bottom Line
Netflix’s stay-at-home appeal made it both one of the best mega caps as well as tech stocks in 2020. But as the competition heats up, the company has to show that it continues to be the high streaming option, and that it is well positioned to protect its turf.
Investors appear to be taking a rest from Netflix stock as they wait to determine if that could happen.
