The FAANG team 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 immensely from the COVID-19 pandemic as people sheltering in its place used their products to shop, work and entertain online.
Of the previous year alone, Facebook gained 35 %, Amazon rose 78 %, Apple was up 86 %, Netflix saw a 61 % boost, along with Google’s parent Alphabet is actually up 32 %. As we enter 2021, investors are actually thinking if these tech titans, optimized for lockdown commerce, will achieve similar or perhaps even better upside this season.
From this particular number of 5 stocks, we’re 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 company and the stock benefited from the stay-at-home environment, spurring desire for its streaming service. The stock surged aproximatelly ninety % from the minimal it hit on March 16, until mid October.
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Nonetheless, during the past three months, that rally has run out of steam, as the company’s key rival Disney (NYSE:DIS) gained a great deal of ground in the streaming battle.
Within a year of its launch, the DIS’s streaming service, Disney+, today has more than 80 million paid subscribers. That is a substantial jump from the 57.5 million it found to the summer quarter. That compares with Netflix’s 195 million subscribers as of September.
These successes by Disney+ came at the identical time Netflix has been reporting a slowdown in the subscriber growth of its. Netflix in October reported it added 2.2 million members in the third quarter on a net schedule, light of the forecast of its in July of 2.5 million brand new subscriptions for the period.
But Disney+ isn’t the only headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division is within the midst of a similar restructuring as it focuses on the new HBO Max of its streaming platform. Also, Comcast’s (NASDAQ:CMCSA) NBCUniversal is realigning its entertainment operations to give priority to the new Peacock of its streaming service.
Negative Cash Flows
Apart from climbing competition, what makes Netflix a lot more vulnerable among the FAANG class is the company’s tight cash position. Given that the service spends a lot to develop its exclusive shows and shoot international markets, it burns a great deal of cash each quarter.
In order to enhance its cash position, Netflix raised prices for its most popular program during the last quarter, the next time the company has done so in as a long time. The action might possibly prove counterproductive in an environment where men and women 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 previous week raised very similar fears in the note of his, warning that subscriber growth might slow in 2021:
“Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now clearly broken down as 1) trust in its streaming exceptionalism is actually fading relatively even as two) the stay-at-home trade might be “very 2020″ even with some concern over just how U.K. and South African virus mutations could impact Covid-19 vaccine efficacy.”
The 12-month cost target of his for Netflix stock is $412, aproximatelly 20 % beneath the present level of its.
Netflix’s stay-at-home appeal made it both one of the best mega caps and tech stocks in 2020. But as the competition heats up, the company should show that it is still the high streaming option, and it is well-positioned to protect its turf.
Investors appear to be taking a break from Netflix stock as they hold out to find out if that could happen.