The FAANG group of mega cap stocks produced hefty returns for investors throughout 2020.
The team, 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 products of theirs to shop, work as well as entertain online.
During the past year alone, Facebook gained thirty five %, Amazon rose 78 %, Apple was up 86 %, Netflix saw a 61 % boost, as well as Google’s parent Alphabet is up 32 %. As we enter 2021, investors are wondering if these tech titans, enhanced for lockdown commerce, will achieve similar or even even better upside this season.
From this number of 5 stocks, we are analyzing Netflix today – a high-performer throughout the pandemic, it’s 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 enterprise and its stock benefited from the stay-at-home environment, spurring desire due to its streaming service. The inventory surged aproximatelly ninety % from the minimal it hit on March sixteen, until mid-October.
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But, during the previous 3 months, that rally has run out of steam, as the company’s main rival Disney (NYSE:DIS) received a great deal of ground of the streaming battle.
Within a year of its launch, the DIS’s streaming service, Disney+, now has greater than eighty million paid subscribers. That’s a tremendous jump from the 57.5 million it found to the summer quarter. Which compares with Netflix’s 195 million subscribers as of September.
These successes by Disney+ arrived at the identical time Netflix has been reporting a slowdown in its subscriber growth. Netflix in October found it included 2.2 million members in the third quarter on a net foundation, light of its forecast 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 a similar restructuring as it focuses on the new HBO Max of its streaming platform. As well, Comcast’s (NASDAQ:CMCSA) NBCUniversal is actually realigning its entertainment businesses to give priority to its new Peacock streaming service.
Negative Cash Flows
Apart from growing competition, what makes Netflix more weak among the FAANG class is the company’s tight money position. Because the service spends a great deal to develop the exclusive shows of its and shoot international markets, it burns a good deal of cash each quarter.
to be able to improve its cash position, Netflix raised prices for its most popular plan during the very last quarter, the next time the company did so in as a long time. The action might prove counterproductive in an environment in which men and women are losing jobs and competition is heating up. In the past, Netflix price hikes have led to a slowdown in subscriber development, particularly in the more mature U.S. market.
Benchmark analyst Matthew Harrigan last week raised similar issues in his note, warning that subscriber growth might slow in 2021:
“Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now obviously broken down as 1) trust in its streaming exceptionalism is fading somewhat even as two) the stay-at-home trade might be “very 2020″ in spite of a little concern over how U.K. and South African virus mutations could affect Covid-19 vaccine efficacy.”
His 12 month price 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 and tech stocks in 2020. But as the competition heats up, the business has to show it is the high streaming choice, and that it’s well positioned to protect its turf.
Investors appear to be taking a break from Netflix stock as they delay to determine if that can occur.