The FAANG group of mega cap stocks produced hefty returns for investors during 2020. The team, whose members include 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 their products to shop, work as well as entertain online.
During the past 12 months alone, Facebook gained 35 %, Amazon rose seventy eight %, Apple was up 86 %, Netflix discovered a 61 % boost, and Google’s parent Alphabet is actually up 32 %. As we enter 2021, investors are asking yourself in case these tech titans, enhanced for lockdown commerce, will bring very similar or even even better upside this year.
By this particular group of 5 stocks, we’re analyzing Netflix today – a high-performer throughout 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 atmosphere, spurring desire due to its streaming service. The stock surged aproximatelly ninety % off the low it hit on March sixteen, until mid October.
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However, during the past three months, that rally has run out of steam, as the company’s main rival Disney (NYSE:DIS) acquired a great deal of ground in the streaming fight.
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 substantial jump from the 57.5 million it reported to the summer quarter. That compares with Netflix’s 195 million members as of September.
These successes by Disney+ emerged at the identical time Netflix has been reporting a slowdown in its subscriber growth. Netflix in October reported it added 2.2 million members in the third quarter on a net foundation, light of the forecast of its in July of 2.5 million brand new subscriptions for the period.
But Disney+ is not the sole headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division is in the midst of an equivalent restructuring as it focuses primarily on the new HBO Max of its streaming wedge. As well, Comcast’s (NASDAQ:CMCSA) NBCUniversal is actually 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 money position. Because the service spends a great deal to create its exclusive shows and shoot international markets, it burns a lot of cash each quarter.
To improve the cash position of its, Netflix raised prices for its most popular program throughout the very last quarter, the second time the company has done so in as many years. The action might prove counterproductive in an atmosphere in which folks are losing jobs as well as competition is warming 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 very similar fears into the note of his, 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) belief in the streaming exceptionalism of its is fading relatively even as 2) the stay-at-home trade may be “very 2020″ despite having a little concern over just how U.K. and South African virus mutations could impact Covid-19 vaccine efficacy.”
The 12-month price target of his for Netflix stock is $412, aproximatelly twenty % below the current level of its.
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 business enterprise should show that it continues to be the top streaming option, and it is well positioned to defend its turf.
Investors appear to be taking a rest from Netflix stock as they wait to determine if that can happen.