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Time For Investors To Worry about Netflix Stock?

The FAANG team of mega cap stocks produced hefty returns for investors during 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 in place used the products of theirs to shop, work as well as entertain online.

During the older year alone, Facebook gained 35 %, Amazon rose 78 %, Apple was up 86 %, Netflix saw a 61 % boost, as well as Google’s parent Alphabet is up 32 %. As we enter 2021, investors are thinking if these tech titans, optimized for lockdown commerce, will bring very similar or even better upside this season.

From this particular number of five stocks, we are analyzing Netflix today – a high performer throughout 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 the stock benefited from the stay-at-home atmosphere, spurring demand due to its streaming service. The stock surged aproximatelly 90 % from the low it hit on March 16, until mid October.

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

Within a year of the launch of its, the DIS’s streaming service, Disney+, now has greater than 80 million paid subscribers. That is a substantial jump from the 57.5 million it found in the summer quarter. That compares with Netflix’s 195 million subscribers as of September.

These successes by Disney+ arrived at the same 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 schedule, light of the forecast of its in July of 2.5 million new subscriptions for the period.

But Disney+ is not the only headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division can be found in the midst of a similar restructuring as it focuses primarily on its new HBO Max streaming wedge. Also, Comcast’s (NASDAQ:CMCSA) NBCUniversal is actually realigning its entertainment operations to give priority to its new Peacock streaming service.

Negative Cash Flows
Apart from growing competition, what makes Netflix more weak among the FAANG group is the company’s tight money position. Because the service spends a great deal to develop its exclusive shows and capture international markets, it burns a good deal of money each quarter.

to be able to enhance its cash position, Netflix raised prices for its most popular plan throughout the final quarter, the second time the company has done so in as several years. The move could prove counterproductive in an atmosphere wherein men and women are losing jobs as well as competition is warming up. In the past, Netflix price hikes have led to a slowdown in subscriber development, particularly in the more mature U.S. market.

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

“Netflix’s trading correlation with other prominent NASDAQ 100  and FAAMG names has now clearly broken down as one) confidence in the streaming exceptionalism of its is fading relatively even as 2) the stay-at-home trade might be “very 2020″ even with a bit of concern about how U.K. and South African virus mutations could affect Covid-19 vaccine efficacy.”

His 12-month price target for Netflix stock is $412, about twenty % 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 business has to show it is the top streaming option, and it is well positioned to protect the turf of its.

Investors appear to be taking a break from Netflix stock as they hold out to see if that can happen.

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