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 immensely from the COVID 19 pandemic as individuals sheltering into position used the devices of theirs to shop, work and entertain online.
During the older year alone, Facebook gained thirty five %, Amazon rose seventy eight %, Apple was up eighty six %, Netflix discovered a 61 % boost, as well as Google’s parent Alphabet is actually up 32 %. As we enter 2021, investors are wondering if these tech titans, optimized for lockdown commerce, will bring very similar or perhaps much more effectively upside this season.
From this group of five stocks, we’re analyzing Netflix today – a high performer during the pandemic, it is 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 due to its streaming service. The stock surged about 90 % from the reduced it hit on March 16, until mid October.
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Nevertheless, during the previous three weeks, that rally has run out of steam, as the company’s key rival Disney (NYSE:DIS) acquired a lot of ground of the streaming fight.
Within a year of its launch, the DIS’s streaming service, Disney+, today has greater than eighty million paid subscribers. That’s a substantial jump from the 57.5 million it reported in 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 its subscriber growth. Netflix in October reported that it included 2.2 million members in the third quarter on a net basis, short of its forecast in July of 2.5 million brand new subscriptions for the period.
But Disney+ is not the only headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division is in the midst of a comparable restructuring as it concentrates on its new HBO Max streaming wedge. Too, Comcast’s (NASDAQ:CMCSA) NBCUniversal is realigning its entertainment operations to give priority to its new Peacock streaming service.
Negative Cash Flows
Apart from growing competition, what makes Netflix more vulnerable among the FAANG group is the company’s tight money position. Given that the service spends a great deal to develop its extraordinary shows and capture international markets, it burns a lot of cash each quarter.
In order to enhance its cash position, Netflix raised prices due to its most popular plan throughout the last quarter, the second time the company did so in as several years. The action might prove counterproductive in an environment where folks are losing jobs as well as competition is warming 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 previous week raised very similar fears into his note, warning that subscriber development may well slow in 2021:
“Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now obviously broken down as 1) trust in the streaming exceptionalism of its is actually fading relatively even as 2) the stay-at-home trade could be “very 2020″ even with some concern about just how U.K. and South African virus mutations might affect Covid 19 vaccine efficacy.”
The 12 month price target of his for Netflix stock is actually $412, aproximatelly 20 % beneath its current level.
Netflix’s stay-at-home appeal made it both one of the best mega caps as well as tech stocks in 2020. But as the competition heats up, the business has to show it is the high streaming choice, and it’s well-positioned to defend its turf.
Investors appear to be taking a rest from Netflix inventory as they wait to see if that will happen.