Streaming device manufacturer Roku (NASDAQ:ROKU) is a tough nut to crack. Although I appreciate the company’s relevancy in the cord-cutting era, Roku stock itself is an emotional investment.
I said as such when I last wrote about it. I also suggested that investors avoiding buying into the enthusiasm centered over an imminent deal with Apple (NASDAQ:AAPL).
Do I still feel the same way? Before I answer that, let’s take a brief look at what happened to Roku Inc stock after my last write-up. Immediately following publication, the streaming firm moved higher for consecutive sessions. However, unfavorable competitive news in April hurt sentiment, sending shares lower. Against my publication date, ROKU is down slightly more than 1%.
Essentially, we’re back at square one. Potentially, this dynamic means that both excessive bullishness and bearishness has been priced into the valuation. Therefore, we must look at the fundamentals for Roku stock, which again, are compelling.
But don’t strictly take my word for it. According to investment firm Susquehanna, Roku Inc stock will keep rising for one simple, but overriding reason: strong sales growth as more TV viewers cut the cord. The analyst making the call believes in the upside trajectory despite ROKU having already enjoyed pronounced optimism.
Obviously, the signs of doom for traditional TV providers are everywhere, which ultimately benefits Roku stock. Earlier this year, a PwC study revealed that only two-thirds of American households are still plugged in. Due to profound laziness, I’m one of those folks, “stuck” with my Dish Network (NASDAQ:DISH) membership.
However, this will surely change. Not only are people abandoning traditional TV, but the prime demographic — those aged 18 to 49 years — is leading the exodus.
So, this is a net positive for Roku Inc stock, right? Well, not quite.
Aggressive Competition Threatens to Spoil Roku Stock
By most measures, ROKU delivered strong results for its most recent earnings report for the fourth quarter of 2018. The streaming firm produced earnings-per-share of 6 cents and revenue of $275.7 million. These totals easily exceeded Q4 estimates of 3 cents EPS and $262.1 million in sales.
However, these numbers don’t really stack up well compared to the competition. I’m not just talking about Netflix (NASDAQ:NFLX), which rang up $4.5 billion in Q1. Instead, if I was buying Roku stock at current prices, I’m looking at Disney (NYSE:DIS) and AT&T (NYSE:T), both of which are eyeballing the streaming platform.
True, this isn’t an apples-to-apples comparison. However, the collective moves give consumers more choices. Additionally, as Disney revealed with their Disney+ streaming service pricing, the big dogs aren’t merely competing on content and platforms. Rather, they’re directly appealing to consumers’ wallets.
As you know, Disney’s decision to undercut Netflix with an initial $6.99 subscription fee shocked analysts. I’m not entirely sure if that pricing is sustainable in the longer term. Nevertheless, the important takeaway here is that streaming is such a compelling pie that the stalwarts will do anything to have a slice. This is the key headwind that stakeholders of Roku Inc stock should keep in mind when discussing Amazon (NASDAQ:AMZN).
Remember that “unfavorable competitive news” I mentioned earlier? I was talking about Amazon. Specifically, the e-commerce giant wants to squeeze ROKU with its own offering of free streaming TV.
Of course, we’ve been down this road before. Previously, the intense competition didn’t bother shareholders of Roku stock because the underlying company dominated the free-streaming sector. But with the giants of industry eager to snuff out the small fish, ROKU looks vulnerable.
This Time, It’s Different for Roku Inc Stock
Last year, ROKU CEO Anthony Wood boldly stated that he wasn’t worried about Amazon and its ilk. While acknowledging their greatness, Wood explained that they’re too busy working on myriad projects. Instead, Wood and his team are focused on one thing: delivering the best streaming TV experience.
He had a right to feel that way. Apple’s foray into the market was, and arguably still is, disjointed. Amazon has always had the clout, but they seemed more intent on forging original content. That gave Roku stock a practically uncontested niche.
But now, the situation has changed. Everyone is moving into streaming and looking to disrupt old domains. For instance, Amazon and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) are eager to kick out Sony (NYSE:SNE) in streaming’s gaming space.
The difference here is that Sony has considerable resources to wield. Roku Inc? They too have resources, but they’re rounding errors compared to what Amazon and Google carry.
I still like what Roku is doing, and I believe that their core products are relevant. But the market price is too rich for the broader context. I’m interested but it will take a substantive discount for me to actually pull the trigger.
As of this writing, Josh Enomoto is long AT&T and Sony.
