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Time For Investors To Worry about Netflix Stock?

The FAANG group 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 vastly from the COVID 19 pandemic as individuals sheltering in its place used their devices to shop, work and entertain online.

During the past 12 months alone, Facebook gained thirty five %, Amazon rose 78 %, Apple was up 86 %, Netflix saw a 61 % boost, and Google’s parent Alphabet is actually up 32 %. As we enter 2021, investors are actually wondering if these tech titans, optimized for lockdown commerce, will bring very similar or perhaps even better upside this year.

By this group of 5 stocks, we’re analyzing Netflix today – a high-performer during the pandemic, it is 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 atmosphere, spurring desire for its streaming service. The stock surged aproximatelly ninety % off the low 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 of 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 significant jump from the 57.5 million it found in the summer quarter. Which compares with Netflix’s 195 million members 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 reported it added 2.2 million members in the third quarter on a net basis, light of its forecast in July of 2.5 million new subscriptions for the period.

But Disney+ isn’t the only headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division is within the midst of a similar restructuring as it concentrates on the latest HBO Max of its streaming wedge. 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 climbing competition, what makes Netflix more vulnerable among the FAANG group is the company’s small cash position. Because the service spends a lot to create the extraordinary shows of its and capture international markets, it burns a good deal of cash each quarter.

To improve the money position of its, Netflix raised prices because of its most popular program during the last quarter, the second time the company has done so in as a long time. The move might possibly prove counterproductive in an environment wherein individuals are losing jobs and competition is heating up. In the past, Netflix price hikes have led to a slowdown in subscriber growth, particularly in the more-mature U.S. market.

Benchmark analyst Matthew Harrigan last week raised similar concerns in his note, warning that subscriber advancement may well slow in 2021:

“Netflix’s trading correlation with various other prominent NASDAQ 100  and FAAMG names has now clearly broken down as one) trust in its streaming exceptionalism is actually fading somewhat even as 2) the stay-at-home trade may be “very 2020″ in spite of some concern about just how U.K. and South African virus mutations could impact Covid-19 vaccine efficacy.”

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

Bottom Line

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

Investors seem to be taking a break from Netflix stock as they delay to find out if that can occur.

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