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The FAANG team of mega cap stocks produced hefty returns for investors throughout 2020.

The team, whose members consist of 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 into position used the products of theirs to shop, work as well as entertain online.

Of the previous 12 months alone, Facebook gained thirty five %, Amazon rose 78 %, Apple was up eighty six %, Netflix saw a 61 % boost, along with Google’s parent Alphabet is up 32 %. As we enter 2021, investors are actually wondering in case these tech titans, optimized for lockdown commerce, will bring 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 now 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 atmosphere, spurring demand for its streaming service. The inventory surged about 90 % off the low it hit on March sixteen, until mid October.

NFLX Weekly TTMNFLX Weekly TTM
But, during the past 3 months, that rally has run out of steam, as the company’s key rival Disney (NYSE:DIS) acquired a great deal of ground in the streaming fight.

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

These successes by Disney+ emerged at the identical time Netflix has been reporting a slowdown in the subscriber growth of its. Netflix in October discovered it added 2.2 million members in the third quarter on a net schedule, short of the forecast of its 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 within the midst of an equivalent restructuring as it concentrates on its new HBO Max streaming platform. As well, 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 growing competition, what makes Netflix much more vulnerable among the FAANG group is the company’s small money position. Because the service spends a lot to create its extraordinary shows and shoot international markets, it burns a great deal of cash each quarter.

To enhance its cash position, Netflix raised prices because of its most popular plan during the last quarter, the second time the company has been doing so in as several years. The action might prove counterproductive in an atmosphere in which people 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 previous week raised similar fears in the note of his, warning that subscriber growth might 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 its streaming exceptionalism is fading somewhat even as 2) the stay-at-home trade could be “very 2020″ despite having some concern about just how U.K. and South African virus mutations can have an effect on Covid 19 vaccine efficacy.”

The 12-month cost target of his for Netflix stock is $412, about 20 % beneath its present 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 has to show that it is still the high streaming choice, and that it is well-positioned to protect its turf.

Investors seem to be taking a rest from Netflix stock as they delay to determine if that will occur.

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