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Time For Investors To Be worried about Netflix Stock?

The FAANG group of mega cap stocks produced hefty returns for investors during 2020. The group, whose members consist of 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 place used their devices to shop, work as well as entertain online.

During the previous year alone, Facebook gained 35 %, Amazon rose 78 %, Apple was up eighty six %, Netflix discovered a 61 % boost, along with Google’s parent Alphabet is up thirty two %. As we enter 2021, investors are actually thinking if these tech titans, enhanced for lockdown commerce, will provide similar or even a lot better upside this year.

From this particular group of five stocks, we’re analyzing Netflix today – a high-performer during the pandemic, it’s today facing a unique competitive threat.

Stay-at-Home Appeal Diminishing?
Netflix has been one of probably the strongest equity performers of 2020. The company and the stock benefited from the stay-at-home atmosphere, spurring desire due to its streaming service. The stock surged aproximatelly ninety % from the low it hit on March 16, until mid-October.

NFLX Weekly TTMNFLX Weekly TTM
But, during the previous 3 weeks, that rally has run out of steam, as the company’s primary rival Disney (NYSE:DIS) gained a lot of ground in the streaming fight.

Within a year of its launch, the DIS’s streaming service, Disney+, now has more than eighty million paid subscribers. That is a tremendous 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 found it included 2.2 million members in the third quarter on a net basis, short 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 is within the midst of a similar restructuring as it focuses primarily on its new HBO Max streaming platform. Also, 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, the thing that makes Netflix more weak among the FAANG group is the company’s small cash position. Because the service spends a lot to create its extraordinary shows and shoot international markets, it burns a lot of cash each quarter.

to be able to improve its cash position, Netflix raised prices due to its most popular plan throughout the last quarter, the next time the company has been doing so in as a long time. The move could prove counterproductive in an environment in which men and women are losing jobs as well as competition is heating 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 concerns into the note of his, warning that subscriber advancement may well slow in 2021:

“Netflix’s trading correlation with various other prominent NASDAQ 100  and FAAMG names has now obviously broken down as 1) belief in the streaming exceptionalism of its is actually fading relatively even as 2) the stay-at-home trade may be “very 2020″ in spite of a little concern over how U.K. and South African virus mutations might impact Covid-19 vaccine efficacy.”

The 12 month price target of his for Netflix stock is $412, about 20 % beneath the present level of its.

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 business enterprise should show that it is the top streaming option, and it’s well positioned to defend the turf of its.

Investors appear to be taking a break from Netflix stock as they delay to determine if that can happen.

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