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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 men and women sheltering in its place used their products to shop, work as well as entertain online.

During the past year alone, Facebook gained thirty five %, 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 wondering 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’re 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 probably the strongest equity performers of 2020. The business and its stock benefited from the stay-at-home atmosphere, spurring demand due to its streaming service. The inventory surged about 90 % from the low it hit on March 16, until mid-October.

NFLX Weekly TTMNFLX Weekly TTM
Nonetheless, during the previous 3 months, that rally has run out of steam, as the company’s key rival Disney (NYSE:DIS) gained considerable ground in the streaming battle.

Within a year of its launch, the DIS’s streaming service, Disney+, today has more than eighty million paid subscribers. That’s a tremendous jump from the 57.5 million it reported to the summer quarter. Which compares with Netflix’s 195 million members as of September.

These successes by Disney+ arrived at the same time Netflix has been reporting a slowdown in its subscriber growth. 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 new subscriptions for the period.

But Disney+ is not the sole headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division can be found in the midst of an equivalent restructuring as it is focused on its latest HBO Max streaming wedge. 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 climbing competition, what makes Netflix more vulnerable among the FAANG class is the company’s tight money position. Given that the service spends a lot to develop its extraordinary shows and shoot international markets, it burns a great deal of money each quarter.

In order to enhance the money position of its, Netflix raised prices because of its most popular program during the very last quarter, the next time the company did so in as several years. The move might possibly prove counterproductive in an atmosphere where individuals are losing jobs as well as competition is heating 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 similar issues in the note of his, warning that subscriber advancement might slow in 2021:

Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now clearly broken down as 1) trust 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 little concern about just how U.K. and South African virus mutations could affect Covid 19 vaccine efficacy.”

His 12-month price target for Netflix stock is actually $412, aproximatelly 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 business should show it continues to be the top streaming choice, and that it is well positioned to protect its turf.

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

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