The FAANG team of mega cap stocks developed 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 greatly from the COVID 19 pandemic as people sheltering into position used their products to shop, work and entertain online.

Of the previous year alone, Facebook gained 35 %, 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 asking yourself in case these tech titans, enhanced for lockdown commerce, will provide similar or even a lot better upside this year.

From this number of five stocks, we’re analyzing Netflix today – a high performer during the pandemic, it is today 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 environment, spurring need for its streaming service. The stock surged aproximatelly 90 % from the low it hit on March sixteen, until mid-October.

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

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

These successes by Disney+ arrived at the identical time Netflix has been reporting a slowdown in the subscriber growth of its. Netflix in October discovered that it included 2.2 million members in the third quarter on a net schedule, light 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 can be found in the midst of an equivalent restructuring as it is focused on its new HBO Max streaming wedge. Also, Comcast’s (NASDAQ:CMCSA) NBCUniversal is actually realigning its entertainment businesses to give priority to its new Peacock streaming service.

Negative Cash Flows
Apart from climbing competition, the thing that makes Netflix a lot more weak among the FAANG group is the company’s tight cash 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 money each quarter.

To improve the money position of its, Netflix raised prices due to its most popular program during the last quarter, the second time the company has done so in as a long time. The move could prove counterproductive in an atmosphere where individuals are losing jobs and 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 various other prominent NASDAQ 100 and FAAMG names has now obviously broken down as 1) trust in its streaming exceptionalism is actually fading somewhat even as two) the stay-at-home trade might be “very 2020″ even with some concern about how U.K. and South African virus mutations could have an effect on Covid-19 vaccine efficacy.”

The 12-month price target of his for Netflix stock is $412, about twenty % below its present level.

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 company needs to show it is the top streaming option, and that it is well-positioned to defend its turf.

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