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The FAANG team of mega cap stocks produced hefty returns for investors during 2020.

The group, whose members consist of Facebook (NASDAQ:FB), Amazon.com (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOGL) benefited greatly from the COVID 19 pandemic as men and women sheltering in place used their products to shop, work as well as entertain online.

Of the past year alone, Facebook gained thirty five %, Amazon rose 78 %, Apple was up eighty six %, Netflix saw a sixty one % boost, along with Google’s parent Alphabet is up thirty two %. As we enter 2021, investors are asking yourself if these tech titans, enhanced for lockdown commerce, will provide similar or even a lot better upside this season.

By this number of 5 stocks, we are analyzing Netflix today – a high performer throughout the pandemic, it’s now facing a distinctive 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 desire for its streaming service. The inventory surged about ninety % off the minimal it hit on March sixteen, until mid-October.

NFLX Weekly TTMNFLX Weekly TTM
However, during the previous three weeks, that rally has run out of steam, as the company’s primary rival Disney (NYSE:DIS) acquired considerable ground in the streaming battle.

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

These successes by Disney+ emerged at exactly the same time Netflix has been reporting a slowdown in the subscriber growth of its. Netflix in October reported it added 2.2 million subscribers in the third quarter on a net foundation, short of the forecast of its in July of 2.5 million brand new subscriptions for the period.

But Disney+ isn’t the sole headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division is within the midst of a similar restructuring as it concentrates on the new HBO Max of its streaming platform. As well, 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 rising competition, the thing that makes Netflix a lot more vulnerable among the FAANG group is the company’s small money position. Because the service spends a great deal to develop its exclusive shows and shoot international markets, it burns a great deal of cash each quarter.

To enhance its money position, Netflix raised prices due to its most popular plan during the very last quarter, the next time the company has done so in as several years. The action could prove counterproductive in an environment wherein individuals are losing jobs and competition is warming 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 last week raised very similar concerns into 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) trust in the streaming exceptionalism of its is fading somewhat even as 2) the stay-at-home trade may be “very 2020″ even with some concern over just how U.K. and South African virus mutations might impact Covid-19 vaccine efficacy.”

His 12-month price target for Netflix stock is $412, about 20 % below the present level of its.

Bottom Line

Netflix’s stay-at-home appeal made it both one of the greatest mega caps and tech stocks in 2020. But as the competition heats up, the company must show it continues to be the high streaming option, and it’s well positioned to protect the turf of its.

Investors seem to be taking a break from Netflix inventory as they wait to determine if that will happen.

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