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 men and women sheltering in position used their products to shop, work as well as entertain online.
During the older year alone, Facebook gained 35 %, Amazon rose 78 %, Apple was up 86 %, Netflix saw a 61 % boost, and Google’s parent Alphabet is actually up thirty two %. As we enter 2021, investors are wondering in case these tech titans, enhanced for lockdown commerce, will provide similar or perhaps much more effectively upside this season.
By this group of 5 stocks, we are 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 the strongest equity performers of 2020. The business and its stock benefited from the stay-at-home environment, spurring demand due to its streaming service. The stock surged about 90 % off the reduced it hit on March 16, until mid October.
NFLX Weekly TTMNFLX Weekly TTM
Nevertheless, during the past 3 months, that rally has run out of steam, as the company’s main 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 is a substantial jump from the 57.5 million it found 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 development. Netflix in October found that it included 2.2 million members in the third quarter on a net foundation, short 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 an equivalent restructuring as it is focused on its new HBO Max streaming platform. Also, Comcast’s (NASDAQ:CMCSA) NBCUniversal is actually realigning its entertainment operations 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 lot to develop its exclusive shows and capture international markets, it burns a lot of money each quarter.
to be able to enhance its cash position, Netflix raised prices for its most popular program during the last quarter, the next time the company has been doing so in as many years. The action might prove counterproductive in an environment where people are losing jobs and competition is heating up. In the past, Netflix priced 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 concerns in the note of his, warning that subscriber advancement could possibly slow in 2021:
“Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now obviously broken down as one) trust in its streaming exceptionalism is fading somewhat even as 2) the stay-at-home trade could be “very 2020″ in spite of a bit of 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 present level.
Bottom Line
Netflix’s stay-at-home appeal made it both one of the greatest mega hats and tech stocks in 2020. But as the competition heats up, the business needs to show it continues to be the high streaming choice, and that it’s well-positioned to protect the turf of its.
Investors appear to be taking a rest from Netflix stock as they delay to find out if that could occur.
