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Time For Investors To Be concerned about Netflix Stock?

The FAANG team of mega cap stocks produced hefty returns for investors during 2020. The group, whose members include 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 individuals sheltering in place used the products of theirs to shop, work and entertain online.

Of the past year alone, Facebook gained 35 %, Amazon rose seventy eight %, Apple was up 86 %, Netflix saw a sixty one % boost, as well as Google’s parent Alphabet is actually up thirty two %. As we enter 2021, investors are actually thinking if these tech titans, optimized for lockdown commerce, will bring similar or even even better upside this season.

From this particular number of five 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 the strongest equity performers of 2020. The business enterprise and its stock benefited from the stay-at-home atmosphere, spurring desire due to its streaming service. The stock surged aproximatelly 90 % off the reduced it hit on March sixteen, 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 main rival Disney (NYSE:DIS) gained considerable ground of the streaming battle.

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

These successes by Disney+ emerged at the identical time Netflix has been reporting a slowdown in the subscriber growth of its. Netflix in October discovered it included 2.2 million members in the third quarter on a net foundation, light of its forecast 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 is within the midst of a comparable restructuring as it focuses primarily on the latest HBO Max of its streaming wedge. Too, Comcast’s (NASDAQ:CMCSA) NBCUniversal is realigning its entertainment operations to give priority to the new Peacock of its streaming service.

Negative Cash Flows
Apart from growing competition, the thing that makes Netflix more vulnerable among the FAANG class is the company’s small money position. Given that the service spends a lot to create the extraordinary shows of its and capture international markets, it burns a great deal of cash each quarter.

to be able to enhance its money position, Netflix raised prices for its most popular program throughout the final quarter, the next time the company has been doing so in as many years. The move could prove counterproductive in an atmosphere where people are losing jobs as well as competition is warming up. In the past, Netflix price hikes have led to a slowdown in subscriber growth, especially in the more-mature U.S. market.

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

“Netflix’s trading correlation with other prominent NASDAQ 100  and FAAMG names has now clearly broken down as 1) trust in its streaming exceptionalism is fading somewhat even as 2) the stay-at-home trade may be “very 2020″ despite having 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, aproximatelly twenty % below the current 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 business should show it continues to be the top streaming choice, and that it’s well-positioned to protect its turf.

Investors seem to be taking a break from Netflix stock as they delay to determine if that will occur.

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