Time For Investors To Worry about Netflix Stock?

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 greatly from the COVID 19 pandemic as people sheltering in position used the products of theirs to shop, work and entertain online.

Of the older 12 months alone, Facebook gained 35 %, Amazon rose 78 %, Apple was up 86 %, Netflix discovered a sixty one % boost, along with Google’s parent Alphabet is up thirty two %. As we enter 2021, investors are asking yourself if these tech titans, enhanced for lockdown commerce, will achieve very similar or perhaps a lot better upside this season.

From this number of 5 stocks, we’re analyzing Netflix today – a high performer throughout the pandemic, it’s today 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 demand for its streaming service. The stock surged aproximatelly ninety % off the minimal it hit on March 16, until mid-October.

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But, during the previous 3 weeks, that rally has run out of steam, as the company’s key rival Disney (NYSE:DIS) gained considerable ground of the streaming fight.

Within a year of the launch of its, the DIS’s streaming service, Disney+, today has more than eighty million paid subscribers. That is a substantial jump from the 57.5 million it found to the summer quarter. Which compares with Netflix’s 195 million members as of September.

These successes by Disney+ came at the same time Netflix has been reporting a slowdown in the subscriber growth of its. Netflix in October found it included 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+ is not the sole headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division is in the midst of a comparable restructuring as it focuses on the new HBO Max of its streaming platform. 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 climbing competition, what makes Netflix much more vulnerable among the FAANG team is the company’s small money position. Given that the service spends a lot to develop the exclusive shows of its and capture international markets, it burns a good deal of money each quarter.

to be able to improve the money position of its, Netflix raised prices for its most popular plan throughout the very last quarter, the next time the company has done so in as many years. The move might prove counterproductive in an atmosphere wherein folks 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 last week raised similar issues in the note of his, warning that subscriber advancement could possibly slow in 2021:

“Netflix’s trading correlation with various other prominent NASDAQ 100  and FAAMG names has now obviously broken down as 1) trust in the streaming exceptionalism of its is fading somewhat even as two) the stay-at-home trade might be “very 2020″ even with a little concern about how U.K. and South African virus mutations could affect Covid 19 vaccine efficacy.”

The 12 month cost target of his for Netflix stock is $412, about twenty % below its current level.

Bottom Line

Netflix’s stay-at-home appeal made it both one of the best mega hats and tech stocks in 2020. But as the competition heats up, the company needs to show that it is still the high streaming option, and it’s well-positioned to protect the turf of its.

Investors seem to be taking a rest from Netflix stock as they wait to see if that can happen.