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

The group, 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 into position used the products of theirs to shop, work as well as entertain online.

Of the older year alone, Facebook gained 35 %, Amazon rose seventy eight %, Apple was up 86 %, Netflix discovered a 61 % boost, and Google’s parent Alphabet is actually up 32 %. As we enter 2021, investors are actually wondering in case these tech titans, optimized for lockdown commerce, will bring similar or perhaps even better upside this season.

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

Stay-at-Home Appeal Diminishing?
Netflix has been one of the strongest equity performers of 2020. The company and its stock benefited from the stay-at-home atmosphere, spurring desire due to its streaming service. The inventory surged about 90 % off the minimal it hit on March sixteen, until mid-October.

NFLX Weekly TTMNFLX Weekly TTM
Nonetheless, during the past three weeks, that rally has run out of steam, as the company’s primary 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+, today has greater than 80 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+ arrived at the identical time Netflix has been reporting a slowdown in its subscriber development. Netflix in October discovered it added 2.2 million subscribers 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+ is not the sole headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division is within the midst of a comparable restructuring as it focuses on its new HBO Max streaming platform. As well, Comcast’s (NASDAQ:CMCSA) NBCUniversal is 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 class is the company’s tight cash position. Because the service spends a great deal to develop its exclusive shows and capture international markets, it burns a good deal of cash each quarter.

To enhance the money position of its, Netflix raised prices due to its most popular program throughout the very last quarter, the next time the company has been doing so in as a long time. The move could prove counterproductive in an atmosphere in which people are losing jobs and competition is warming up. In the past, Netflix priced 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 concerns into his note, warning that subscriber growth could possibly slow in 2021:

Netflix’s trading correlation with various other prominent NASDAQ 100 and FAAMG names has now clearly broken down as one) belief in the streaming exceptionalism of its is fading relatively even as two) the stay-at-home trade might be “very 2020″ in spite of a bit of concern about just how U.K. and South African virus mutations could have an effect on Covid 19 vaccine efficacy.”

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

Bottom Line

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

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

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