At the technology industry’s biggest tradeshow, Roku (NASDAQ:ROKU) — which bills itself as the No. 1 streaming platform in the U.S. — announced the launch of Roku Select and Roku Plus Series TVs. Unlike prior manufacturing arrangements involving third-party suppliers, the Select (high definition or HD) and Plus Series (4K resolution) represent the first Roku-designed and manufactured TVs. Following the disclosure, ROKU stock popped up around 5%.
Per the company’s press release, the Select and Plus Series will feature 11 models, ranging from 24 to 75 inches. Fundamentally, the new sets will focus on the consumer, providing functions they crave along with accessible prices. For instance, “[a]ll HD offerings will include Roku Voice Remotes, while all Plus Series TVs will come with Roku Voice Remote Pros.” Further, the release noted:
“Roku-branded TVs will offer an expanded audio ecosystem, using the all-new Roku TV Wireless Soundbar, to make consumers’ home theater set-up simple and wire-free. Additionally, all Roku-branded TV models will continue to offer fan-favorite features including Find My Remote, Private Listening, and access to great content like live TV and sports.”
Previously, Roku, which originally developed over-the-top digital media players, depended on third-party manufacturers for company-branded TVs. Therefore, the implication of possibly greater revenue and profitability potential likely lifted ROKU stock.
Still, Roku will not move exclusively to first-party solutions. Instead, per Yahoo Finance, the company “announced its new OLED TV reference design for third-party Roku TV partners. The reference design is meant to bring OLED image quality, which provides more vibrant colors and deeper blacks, to a broader audience.”
ROKU Stock Faces a Tricky Consumer Environment
Given the dour events of 2022, just the mere show of executive initiative probably contributed to enthusiasm for ROKU stock. “Our goal is to continue to create an even better TV experience for everyone,” remarked Roku’s president of devices Mustafa Ozgen. “These Roku-branded TVs will not only complement the current lineup of partner-branded Roku TV models, but also allow us to enable future smart TV innovations.”
“The streaming revolution has only just begun,” added Ozgen. While the optimistic narrative certainly lifted ROKU stock, significant challenges lie ahead.
Fundamentally, management had to do something to revitalize the underlying enterprise. In the third quarter of 2022, Roku’s Platform accounted for $670 million of the total $761 million in revenue posted. Here’s the problem — digital advertising spending dropped sharply in 2022. Therefore, Roku’s new hardware investments must make up the shortfall. Unfortunately, its bread and butter centers on advertising (via the Platform unit).
Now, it’s possible that Roku’s OLED initiative could rejuvenate ROKU stock. Back in 2021, the global OLED TV market jumped 80%. However, at the present juncture, the much-pricier OLED option will likely hit a snag in the U.S. market, with consumers no longer receiving coronavirus-related stimulus checks. And speaking of Covid-19, with the world reopening, consumer sentiment may shift toward social experiences rather than at-home entertainment.
However, focusing on the higher-volume, lower-cost LCD/LED TV sets present challenges as well. Competition in the segment remains deeply entrenched. Further, with mass corporate layoffs clouding the labor market, buying TVs likely ranks near the bottom of consumer priorities. On balance, then, ROKU stock still has a mountain to climb.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
