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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 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 individuals sheltering in place used their products to shop, work as well as entertain online.

Of the previous year alone, Facebook gained 35 %, Amazon rose seventy eight %, Apple was up 86 %, Netflix saw a 61 % boost, as well as Google’s parent Alphabet is up thirty two %. As we enter 2021, investors are wondering if these tech titans, optimized for lockdown commerce, will achieve similar or perhaps much more effectively upside this year.

From this group of 5 stocks, we’re analyzing Netflix today – a high performer during the pandemic, it’s today facing a distinctive 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 environment, spurring desire due to its streaming service. The stock surged about 90 % from the reduced 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 primary rival Disney (NYSE:DIS) acquired a great deal of ground of the streaming battle.

Within a year of its launch, 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 reported to the summer quarter. Which compares with Netflix’s 195 million subscribers as of September.

These successes by Disney+ came at exactly the same time Netflix has been reporting a slowdown in the subscriber development of its. Netflix in October discovered it added 2.2 million members in the third quarter on a net schedule, light of its forecast 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 similar restructuring as it focuses primarily on the latest HBO Max of its streaming platform. As well, Comcast’s (NASDAQ:CMCSA) NBCUniversal is actually realigning its entertainment businesses to give priority to its new Peacock streaming service.

Negative Cash Flows
Apart from climbing competition, what makes Netflix more weak among the FAANG team is the company’s tight money position. Given that the service spends a great deal to create the exclusive shows of its and shoot international markets, it burns a good deal of cash each quarter.

to be able to enhance its cash position, Netflix raised prices due to its most popular plan during the final quarter, the next time the company did so in as a long time. The action might prove counterproductive in an environment wherein people are losing jobs as well as competition is warming up. In the past, Netflix priced hikes have led to a slowdown in subscriber development, particularly in the more mature U.S. market.

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

“Netflix’s trading correlation with various other prominent NASDAQ 100  and FAAMG names has now clearly broken down as 1) trust in the streaming exceptionalism of its is fading somewhat even as two) the stay-at-home trade might be “very 2020″ despite having some concern over just how U.K. and South African virus mutations could impact Covid 19 vaccine efficacy.”

The 12 month cost target of his for Netflix stock is $412, aproximatelly twenty % beneath its current level.

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 company should show that it is still the high streaming option, and it’s well positioned to protect the turf of its.

Investors seem to be taking a break from Netflix stock as they wait to see if that can happen.

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