The FAANG group of mega-cap stocks delivered hefty returns for investors in 2020. The group, whose members have Facebook (NASDAQ :), Amazon.com (NASDAQ :), Apple (NASDAQ :), Netflix (NASDAQ 🙂 and Alphabet (NASDAQ 🙂 benefited enormously from the COVID-19 pandemic because people they used their devices to shop, work and entertain online.
In the past year alone, Facebook gained 35%, Amazon rose 78%. Apple was up 86%, Netflix was up 61%, and Google & # 39; s parent company Alphabet is up 32%. As we move into 2021, investors are wondering if these tech titans, optimized for lockdown commerce, will bring similar or even better upside this year.
From this group of five stocks, we analyze Netflix today – a peak performer during the pandemic, it now faces a unique competitive threat.
Appeals against those staying at home decreasing?
Netflix is ??one of the strongest equity performers of 2020. The company and its stock took advantage of the home environment, driving demand for its streaming service. The stock rose about 90% through mid-October from the low of March 16.
But in the past three months, that meeting has been exhausted as the company's main rival, Disney (NYSE :), gained significant ground in the gushing battle.
Within a year of its launch, DIS's streaming service, Disney +, now has more than 80 million paid subscribers. That's a significant increase from the 57.5 million it reported in the summer quarter. That's comparable to Netflix's 195 million subscribers in September.
These Disney + successes came at the same time that Netflix reported a slowdown in subscriber growth. Netflix reported in October that it added 2.2 million subscribers on a net basis in the third quarter, short of its July forecast of 2.5 million new subscriptions for that period.
But Disney + isn't Netflix's only headache. AT & T's (NYSE 🙂 WarnerMedia division is in the midst of a similar restructuring as it focuses on its new HBO Max streaming platform. Also Comcast & # 39; s (NASDAQ 🙂 NBCUniversal is realigning its entertainment business to give priority to its new Peacock streaming service.
Negative Cash Flows
Aside from the increasing competition, which makes Netflix more vulnerable among the FAANG group, the company is. Since the service spends a lot to develop its exclusive shows and conquer international markets, it burns a lot of money every quarter.
To improve its cash position, Netflix raised prices for its most popular plan in the past quarter, the second time the company has done so in as many years. The move could be counterproductive in an environment where people are losing jobs and competition is increasing. In the past, Netflix price increases have slowed subscriber growth, particularly in the more mature US market.
Benchmark analyst Matthew Harrigan made similar concerns in his note last week, warning that subscriber growth could slow. in 2021:
"Netflix's trade correlation with other prominent names and FAAMG names has now clearly broken down as 1) confidence in its streaming exceptionalism is on the wane, even if 2) the stay-at-home trade may be" very 2020 " is, even with some concern about how virus mutations in the UK and South Africa may affect the efficacy of the Covid-19 vaccine. "
His 12-month price target for Netflix stock is $ 412, about 20% below current levels.
Bottom Line
Netflix's stay-at-home appeal made it one of the top mega caps and technology stocks in 2020. But as competition intensifies, the company has to show that it is still the best choice for streaming and that it is well positioned to defend its territory.
Investors appear to be taking a break from Netflix stocks while waiting to see if that will happen.
