Roku's Wall Street fortunes are starting 2022 the way they ended 2021, with an equity analyst casting doubt on the streaming company's future and Roku stock subsequently tanking, in this case to low water lines not seen since October 2020.
According to Atlantic Equities' Hamilton Faber, Roku faces too much competition in the OTT platform business from Google, Amazon, Samsung and LG to keep growing in the U.S., where its leading market share hovers around 40%. And don't even get started with Roku dreaming of leadership in international territories like Europe, where Google and Amazon are stronger.
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“To date, the majority of Roku’s business has been in the U.S., a market in which it has clearly been very successful,” Faber wrote in a note to investors. “However, we believe the company is now nearing saturation in the U.S. unless it can win over additional major OEMs, and we believe this is unlikely, certainly in the near term.”
Roku did announce at CES this week a new original equipment manufacturer (OEM) partnership to place its operating system in TV's sold by Sharp Home Electronics Company of America, which controls about 3% of the U.S. television market. Roku has had an OEM agreement in place for some time with the Chinese company that now owns Sharp, Hisense.
Roku maintains a strong relationship with China's TCL, a leading seller of smart TVs in the U.S., but Faber said the two top Korean brands, each of which deploys their own proprietary OS, still present obstacles for Roku.
“We struggle to envisage a near-term situation where Samsung or LG would look to outsource to Roku,” Faber wrote.
Amazon just said at CES that its Amazon Fire TV OS is now deployed in 150 million devices worldwide. And the company recently launched its own branded line of Fire TV-powered smart TVs, which it's selling at loss-leader prices.
Also at CES, TCL announced that it's selling 10 million TVs each year powered by either Android TV or its progeny, Google TV.
As Roku's stock has steadily eroded to a price that is less than a third of what it was trading at just six months ago, various equity analysts have maintained a steady narrative -- the explosive proliferation of the Roku OS may have ended.
Roku ended the third quarter with what it said were 56 million active user accounts worldwide, a metric which has been experiencing decelerating growth recently.
In casting doubt on Roku's future, however, analysts have seemingly ignored other aspects of the company's still very fast growing advertising sales business.
Roku's 82% year-over-year Q3 growth in so-called "platform" revenue was driven largely by the growing viewer clout of the Roku Channel, an AVOD play that will soon be bolstered by a substantial investment in original programming.
With the Roku channel proliferated beyond the confines of Roku devices and the Roku OS, what happens if some of those shows become hits, transforming Roku into something beyond being a mere provider of connected device platform? Keep in mind that these exclusive shows are launching on what is a top-four AVOD platform, according to Parks Associates research.
Also, within a connected TV market that is still fragmented, it has to mean something to the fast-evolving advanced advertising industry that Roku still controls what remains far and away the largest fragment in the U.S.
So look for notes coming soon suggesting Roku is undervalued. ■
