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Time For Investors To Be concerned about Netflix Stock?

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 vastly from the COVID 19 pandemic as folks sheltering into position used the devices of theirs to shop, work as well as entertain online.

Of the previous year alone, Facebook gained 35 %, Amazon rose 78 %, Apple was up 86 %, Netflix saw a 61 % boost, and Google’s parent Alphabet is up 32 %. As we enter 2021, investors are actually wondering in case these tech titans, optimized for lockdown commerce, will bring very similar or even better upside this year.

From this 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 company and the stock benefited from the stay-at-home environment, spurring desire due to its streaming service. The stock surged aproximatelly 90 % from the low it hit on March 16, until mid-October.

NFLX Weekly TTMNFLX Weekly TTM
But, during the previous 3 weeks, that rally has run out of steam, as the company’s main rival Disney (NYSE:DIS) received a lot of ground of the streaming battle.

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

These successes by Disney+ arrived at exactly the same time Netflix has been reporting a slowdown in its subscriber growth. Netflix in October reported it included 2.2 million members in the third quarter on a net basis, light of the forecast of its in July of 2.5 million brand 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 a similar restructuring as it focuses primarily on its latest HBO Max streaming platform. 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 growing competition, what makes Netflix a lot more weak among the FAANG class is the company’s tight cash position. Because the service spends a great deal to develop the exclusive shows of its and capture international markets, it burns a lot of money each quarter.

In order to enhance the money position of its, Netflix raised prices due to its most popular plan during the last quarter, the second time the company did so in as many years. The move could prove counterproductive in an environment in which individuals are losing jobs as well as competition is warming up. In the past, Netflix price hikes have led to a slowdown in subscriber growth, particularly in the more-mature U.S. market.

Benchmark analyst Matthew Harrigan previous week raised similar concerns in the note of his, warning that subscriber development may well slow in 2021:

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

The 12-month cost target of his for Netflix stock is actually $412, aproximatelly 20 % below its current 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 company needs to show that it continues to be the top streaming option, and it is well positioned to defend the turf of its.

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

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