Roku (NASDAQ:ROKU) has been an important force in streaming media for a decade now, but can it withstand the intensified competition it is facing from some of today’s media titans, particularly Amazon (NASDAQ:AMZN)? The next few months may tell whether Roku stock is still worth buying.
Roku produces digital media players that receive video streams from the internet. Roku was the early leader in developing this technology, and it has been profitable as the options for streaming video have exploded in this decade. But now it is facing an aggressive effort by Amazon’s Fire TV to erode its position.
The most recent figures show that 37 % of streamers opt for Roku devices. But Fire TV has been moving up fast, rising from a 16% market share in 2016 to a 24% share in 2017 before reaching this year’s 28% share.
There are other competitors, but they are still lagging. Alphabet’s (NASDAQ:GOOG) Chromecast has just half as large a market share as Fire TV and has been falling further behind.
Global Reach and Roku Stock
The problem for Roku is that Amazon has such global reach, into almost every household in the developed world, that it can constantly market its services in a way Roku can only dream of.
Amazon been greatly expanding its own production of original content in recent years, and can cross-market its hardware to purchasers of these shows. Roku is not a player in the original content game.
Roku’s recent release of a relatively low-cost 4K-capable streaming device shows that it is still well-equipped on the technology side of things.
Amazon may yet answer with new hardware, and the ecommerce giant has already countered with price discounts.
Roku has been increasing its presence at brick-and-mortar stores such as Best Buy and Walmart. By offering discounts and device exclusives through retail stores, it hopes to counter Amazon’s inherent advantage in online marketing.
Roku is also partnering with some lower-priced television manufacturers, embedding its platform onto their sets as a bonus for consumers. This is part of an effort to reach consumers who may not have even been in the market for a streaming service, “late adopters” one could call them, but who will be loyal to Roku after trying their product.
The Bottom Line on ROKU Stock
A key question is whether Roku can diversify so that its revenue stream is not so reliant on its hardware business. The company has launched the Roku Channel, which offers movies, TV shows, news updates and other content. The management says that the Roku Channel, which is available on iOS and Android devices through the Roku app, has 22 million users.
The channel has become a major element of Roku’s advertising business, which has projected sales of $293 million this year, putting Roku right behind Hulu in terms of online advertising.
With all the publicity being given to Amazon’s efforts, the Roku stock price has taken it on the chin in recent weeks. But of course it was a brutal month for the market in general, and the stock remains significantly above its 52-week low.
Given its technological prowess in its market, Roku remains an appealing option for investors who are willing to tolerate some risk.
The author does not own any of the stocks mentioned in this article.
