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

The team, whose members include Facebook (NASDAQ:FB), Amazon.com (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOGL) benefited vastly from the COVID 19 pandemic as folks sheltering in position used their devices to shop, work and entertain online.

During the past 12 months alone, Facebook gained thirty five %, Amazon rose 78 %, Apple was up 86 %, Netflix saw a sixty one % boost, as well as Google’s parent Alphabet is up 32 %. As we enter 2021, investors are wondering if these tech titans, enhanced for lockdown commerce, will provide similar or even much more effectively upside this year.

By this number of five stocks, we are analyzing Netflix today – a high-performer throughout the pandemic, it’s today facing a unique competitive threat.

Stay-at-Home Appeal Diminishing?
Netflix has been one of probably the strongest equity performers of 2020. The business enterprise and the stock benefited from the stay-at-home environment, spurring desire due to its streaming service. The inventory surged aproximatelly ninety % from the low it hit on March sixteen, until mid-October.

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However, during the previous 3 months, that rally has run out of steam, as the company’s primary rival Disney (NYSE:DIS) acquired a lot of ground of the streaming battle.

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

These successes by Disney+ came at the identical time Netflix has been reporting a slowdown in the subscriber growth of its. Netflix in October reported that 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 only headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division is within the midst of a similar restructuring as it focuses on its latest HBO Max streaming wedge. Also, Comcast’s (NASDAQ:CMCSA) NBCUniversal is realigning its entertainment businesses to give priority to its new Peacock streaming service.

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

to be able to enhance its money position, Netflix raised prices because of its most popular plan throughout the final quarter, the second time the company did so in as a long time. The action might possibly prove counterproductive in an environment wherein individuals are losing jobs as well as competition is heating 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 last week raised very similar fears in the note of his, warning that subscriber development might slow in 2021:

Netflix’s trading correlation with other prominent NASDAQ 100 and FAAMG names has now clearly broken down as 1) confidence in the streaming exceptionalism of its is fading relatively even as 2) the stay-at-home trade may be “very 2020″ even with a bit of concern about just how U.K. and South African virus mutations can affect Covid-19 vaccine efficacy.”

The 12 month cost target of his for Netflix stock is $412, about 20 % beneath the current level of its.

Bottom Line

Netflix’s stay-at-home appeal made it both one of the best mega hats as well as tech stocks in 2020. But as the competition heats up, the business should show that it continues to be the high streaming choice, and it’s well positioned to defend the turf of its.

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