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The FAANG group of mega cap stocks produced hefty returns for investors throughout 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 men and women sheltering in position used their products to shop, work and entertain online.

Of the past 12 months alone, Facebook gained thirty five %, Amazon rose 78 %, Apple was up eighty six %, Netflix discovered a 61 % boost, along with Google’s parent Alphabet is actually up thirty two %. As we enter 2021, investors are actually wondering in case these tech titans, optimized for lockdown commerce, will achieve very similar or much more effectively upside this season.

From this group of 5 stocks, we are analyzing Netflix today – a high-performer during the pandemic, it is today facing a distinctive competitive threat.

Stay-at-Home Appeal Diminishing?
Netflix has been one of probably the strongest equity performers of 2020. The company and its stock benefited from the stay-at-home environment, spurring need because of its streaming service. The inventory surged about 90 % off the reduced it hit on March 16, until mid October.

NFLX Weekly TTMNFLX Weekly TTM
But, during the past 3 weeks, that rally has run out of steam, as the company’s key rival Disney (NYSE:DIS) received considerable ground in the streaming battle.

Within a year of its launch, the DIS’s streaming service, Disney+, now has greater than 80 million paid subscribers. That’s a tremendous jump from the 57.5 million it reported to the summer quarter. That compares with Netflix’s 195 million subscribers as of September.

These successes by Disney+ arrived at exactly the same time Netflix has been reporting a slowdown in the subscriber growth of its. Netflix in October discovered it included 2.2 million members in the third quarter on a net foundation, light of the forecast of its in July of 2.5 million brand new subscriptions for the period.

But Disney+ isn’t the sole headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division can be found in the midst of an equivalent restructuring as it concentrates on its latest 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 climbing competition, the thing that makes Netflix much more vulnerable among the FAANG team is the company’s tight cash position. Given that the service spends a lot to develop the exclusive shows of its and shoot international markets, it burns a lot of cash each quarter.

To improve the cash position of its, Netflix raised prices due to its most popular program during the final quarter, the next time the company has been doing so in as several years. The move might prove counterproductive in an atmosphere where folks are losing jobs and 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 previous week raised very similar issues in the note of his, warning that subscriber development might slow in 2021:

Netflix’s trading correlation with various other prominent NASDAQ 100 and FAAMG names has now obviously broken down as one) confidence in the streaming exceptionalism of its is actually fading relatively even as 2) the stay-at-home trade could be “very 2020″ despite having a bit of concern about how U.K. and South African virus mutations could affect Covid 19 vaccine efficacy.”

His 12-month price target for Netflix stock is actually $412, about twenty % beneath the current level of its.

Bottom Line

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 business needs to show that it continues to be the top streaming option, and that it is well positioned to protect the turf of its.

Investors appear to be taking a break from Netflix inventory as they delay to find out if that could happen.

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