The FAANG team of mega cap stocks produced hefty returns for investors during 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 people sheltering in place used their devices to shop, work and entertain online.
During the past year alone, Facebook gained 35 %, Amazon rose 78 %, Apple was up eighty six %, Netflix discovered a sixty one % boost, along with Google’s parent Alphabet is up 32 %. As we enter 2021, investors are actually thinking if these tech titans, optimized for lockdown commerce, will achieve very similar or even better upside this season.
From this particular number of 5 stocks, we are analyzing Netflix today – a high-performer during 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 environment, spurring demand for its streaming service. The stock surged about ninety % off the reduced it hit on March 16, until mid-October.
Within a year of its launch, the DIS’s streaming service, Disney+, now has greater than 80 million paid subscribers. That is 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 growth of its. Netflix in October reported 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+ 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 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 the new Peacock of its streaming service.
Negative Cash Flows
Apart from rising competition, what makes Netflix much more weak among the FAANG team is the company’s tight cash position. Given that the service spends a great deal to create its extraordinary shows and capture international markets, it burns a lot of money each quarter.
To enhance the money position of its, Netflix raised prices for its most popular program throughout the final quarter, the next time the company has been doing so in as several years. The move could prove counterproductive in an atmosphere where folks are losing jobs and competition is warming up. In the past, Netflix priced hikes have led to a slowdown in subscriber development, especially in the more-mature U.S. market.
Benchmark analyst Matthew Harrigan last week raised very similar concerns into the note of his, warning that subscriber advancement might slow in 2021:
“Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now obviously broken down as 1) belief in its streaming exceptionalism is actually fading relatively even as two) the stay-at-home trade could be “very 2020″ even with a little concern about just how U.K. and South African virus mutations might have an effect on Covid 19 vaccine efficacy.”
The 12 month cost target of his for Netflix stock is actually $412, aproximatelly twenty % beneath the current level of its.
Netflix’s stay-at-home appeal made it both one of the greatest mega caps and tech stocks in 2020. But as the competition heats up, the business enterprise must show it is still the top streaming option, and that it is well positioned to defend its turf.
Investors appear to be taking a break from Netflix stock as they hold out to determine if that will occur.