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Time For Investors To Be concerned about Netflix Stock?

The FAANG group of mega cap stocks developed 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 people sheltering into position used the devices of theirs to shop, work and entertain online.

Of the older 12 months alone, Facebook gained 35 %, Amazon rose seventy eight %, Apple was up eighty six %, Netflix saw a 61 % boost, and Google’s parent Alphabet is actually up 32 %. As we enter 2021, investors are actually wondering in case these tech titans, enhanced for lockdown commerce, will achieve very similar or perhaps much more effectively upside this season.

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

Stay-at-Home Appeal Diminishing?
Netflix has been one of the strongest equity performers of 2020. The company and the stock benefited from the stay-at-home environment, spurring demand for its streaming service. The stock surged about ninety % from the minimal it hit on March 16, until mid-October.

NFLX Weekly TTMNFLX Weekly TTM
But, during the previous three weeks, that rally has run out of steam, as the company’s key 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+, today has greater than eighty million paid subscribers. That’s a tremendous jump from the 57.5 million it reported in the summer quarter. That compares with Netflix’s 195 million subscribers as of September.

These successes by Disney+ arrived at 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 foundation, light of the forecast of its in July of 2.5 million new subscriptions for the period.

But Disney+ isn’t the only headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division is in the midst of an equivalent restructuring as it concentrates on the new HBO Max of its streaming platform. Also, Comcast’s (NASDAQ:CMCSA) NBCUniversal is actually realigning its entertainment businesses to give priority to the new Peacock of its streaming service.

Negative Cash Flows
Apart from climbing competition, the thing that makes Netflix much more vulnerable among the FAANG group is the company’s small cash position. Because the service spends a great deal to create the exclusive shows of its and shoot international markets, it burns a lot of cash each quarter.

To enhance its cash position, Netflix raised prices because of its most popular program throughout the very last quarter, the next time the company has done so in as several years. The action could prove counterproductive in an environment where people are losing jobs as well as competition is heating 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 the note of his, warning that subscriber growth might slow in 2021:

“Netflix’s trading correlation with various other prominent NASDAQ 100  and FAAMG names has now obviously broken down as 1) confidence in the streaming exceptionalism of its is fading somewhat even as two) the stay-at-home trade could be “very 2020″ in spite of a little concern over how U.K. and South African virus mutations can have an effect on Covid-19 vaccine efficacy.”

His 12 month cost target for Netflix stock is actually $412, aproximatelly 20 % below the present level of its.

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 company should show it is the high streaming choice, and that it’s well positioned to defend its turf.

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

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