The FAANG group of mega cap stocks produced 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 vastly from the COVID-19 pandemic as individuals sheltering in place used their products to shop, work and entertain online.

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

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 probably the strongest equity performers of 2020. The business and the stock benefited from the stay-at-home atmosphere, spurring desire because of its streaming service. The inventory surged about 90 % from the minimal it hit on March sixteen, until mid October.

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But, during the past 3 months, that rally has run out of steam, as the company’s main rival Disney (NYSE:DIS) acquired considerable ground of the streaming fight.

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

These successes by Disney+ emerged at the same time Netflix has been reporting a slowdown in its subscriber development. Netflix in October discovered it included 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+ is not the sole headache for Netflix. AT&T’s (NYSE:T) WarnerMedia division is within the midst of an equivalent restructuring as it concentrates on its latest HBO Max streaming platform. Too, Comcast’s (NASDAQ:CMCSA) NBCUniversal is realigning its entertainment operations to give priority to its new Peacock streaming service.

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

In order to improve its cash position, Netflix raised prices because of its most popular program during the last quarter, the second time the company has been doing so in as several years. The move could prove counterproductive in an atmosphere 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 development, especially in the more mature U.S. market.

Benchmark analyst Matthew Harrigan last week raised similar fears into his note, warning that subscriber development might slow in 2021:

Netflix’s trading correlation with various other prominent NASDAQ 100 and FAAMG names has now clearly broken down as 1) belief in its streaming exceptionalism is actually fading relatively even as 2) the stay-at-home trade may be “very 2020″ even with a little concern over just how U.K. and South African virus mutations can affect Covid-19 vaccine efficacy.”

The 12 month cost target of his for Netflix stock is $412, about 20 % below its present level.

Bottom Line

Netflix’s stay-at-home appeal made it both one of the greatest mega hats and tech stocks in 2020. But as the competition heats up, the business needs to show that it is the high streaming option, and that it is well positioned to defend its turf.

Investors appear to be taking a break from Netflix stock as they delay to find out if that could happen.