Roku lost 40% of its value as competition warms

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Actions of Roku (ROKU), after a sharp rise this year, plunged nearly 20% Friday after the publication of an extremely dark report by an analyst. Roku's stock was up 1% on Monday. The title has now lost a third of its value since Apple (AAPL) unveiled its streaming service, Apple TV +, would cost only $ 4.99 a month. Roku's stock is about 40% below its record on September 9th.
Investors worry more and more about the competition between Roku and the new Portal TV streaming device from Facebook (FB) as good as Comcast (CMCSA) Xfinity Flex, that the cable company plans to give its customers free broadband Internet service.
Suddenly, there are many more options for streaming media services from the top, or OTT. In many ways, the challenges Roku faces are similar to those Netflix (NFLX) Faces: The rivals come from everywhere.

"We are seeing a significant increase in competition, which will probably reduce the cost of OTT devices and put significant pressure on advertising revenues," said Jeffrey Wlodarczak, analyst at Pivotal Research Group.

Too much competition for Roku?

Wlodarczak's report helped trigger a massive sell-off on Friday. He slapped the shares with a "sell" rating on Roku and a price target of $ 60, or 55% less than when it closed Thursday. The somewhat hyperbolic title of his report does not help things: "ROKU BROKU?"

Roku's steep slope is reminiscent of how TiVo was considered a leader in the digital video recorder market – until cable companies begin to integrate their own DVR technology with set-top boxes.

Still, Roku's stock is still up 250% this year. This means that there could be a lot more room for this to fall. Roku is not expected to be profitable this year or in 2020. The shares are trading at a price of more than 385 times higher than earnings estimates of 2021. So, even if you think that Roku will be a long-term winner for broadcast in continuous, the current price of the action may simply be too high.

This "high valuation" – as well as the "puffs of more and more competitors entering the fray" – are the reasons why Matthew Thornton, SunTrust analyst Robinson Humphrey, said in a report last week that he still had a "hold" rating on the title.

The Bull case for Roku

Still, others on Wall Street are much more optimistic about Roku's future.

"Many new services are catching up with an overcrowded market," Oppenheimer analyst Jason Helfstein said in a report released last week.

Mark Zgutowicz, an analyst at Rosenblatt Securities, also said in a report released late last week that investors were overreacting to fears of heightened competition, particularly from Comcast.

Zgutowicz noted that only a small number of Comcast customers subscribed to the broadband plan only. Comcast has not made its new Xfinity Flex service available to customers who also have cable TV packages with the company. Zgutowicz added that he thought that Roku's customers would remain loyal to the company, noting that Roku had already faced competition from much larger rivals, including Amazon (AMZN).

Roku has also partnered with key manufacturers such as Sharp, Sanyo, Magnavox and Philips to sell its technology directly to many of its smart TVs.

"Roku's dominant brand status in streaming has a significant influence on TV buying decisions, which has allowed it to significantly outperform Amazon Fire TV to date," said Zgutowicz. .

Do not forget the advertising

Tom Forte, an analyst at D.A. Davidson, added in a report that one in five US television households in 2018 had a station inhabited by Roku.

For this reason, Roku – which now has more than 30 million active subscribers – depends a lot less on the sale of its devices than you think. The real money is in advertising revenue.

The so-called Roku platform unit (ie, ad sales) accounted for two-thirds of the overall turnover of its last quarter. The sales of this division jumped 86% compared to the previous year, against 24% for the players. Profit margins are also significantly higher for ads than for materials.

"Roku should benefit from the secular trend of advertising revenue leaving linear TV to benefit OTT platforms," ​​said Oppenheimer's Helfstein.

Apple, Disney and many other media companies, including parent companies of CNN and HBO AT & T (T), all launch subscription services, but Roku may still be able to take advantage of the general trend away from traditional cable television to streaming TV networks.

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