The FAANG group 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 immensely from the COVID 19 pandemic as people sheltering in position used their products to shop, work as well as entertain online.
During the past 12 months alone, Facebook gained 35 %, Amazon rose 78 %, Apple was up eighty six %, Netflix saw a 61 % boost, along with Google’s parent Alphabet is up 32 %. As we enter 2021, investors are asking yourself if these tech titans, enhanced for lockdown commerce, will achieve similar or even a lot better upside this year.
From this particular group of 5 stocks, we’re analyzing Netflix today – a high-performer throughout the pandemic, it is now facing a unique competitive threat.
Stay-at-Home Appeal Diminishing?
Netflix has been one of the strongest equity performers of 2020. The business enterprise and its stock benefited from the stay-at-home environment, spurring desire because of its streaming service. The stock surged about 90 % from the reduced it hit on March sixteen, until mid October.
Within a year of its launch, the DIS’s streaming service, Disney+, now has more than 80 million paid subscribers. That’s a substantial jump from the 57.5 million it found 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 found that it added 2.2 million subscribers in the third quarter on a net basis, short of its forecast in July of 2.5 million 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 primarily on its latest HBO Max streaming wedge. Also, 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 growing competition, the thing that makes Netflix more weak among the FAANG team is the company’s tight money position. Because the service spends a lot to create its exclusive shows and shoot international markets, it burns a good deal of money each quarter.
to be able to improve the money position of its, Netflix raised prices due to its most popular program during the final quarter, the second time the company has been doing so in as a long time. The action might possibly prove counterproductive in an environment where individuals are losing jobs as well as competition is warming up. In the past, Netflix price 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 issues 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 clearly broken down as 1) confidence in its streaming exceptionalism is fading relatively even as 2) the stay-at-home trade might be “very 2020″ even with some concern about how U.K. and South African virus mutations can have an effect on Covid-19 vaccine efficacy.”
His 12-month cost target for Netflix stock is actually $412, aproximatelly 20 % below its present level.
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 needs to show it is still the high streaming choice, and that it’s well positioned to defend its turf.
Investors seem to be taking a break from Netflix stock as they delay to determine if that could happen.