Roku Stock Cuts the Cord
(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)
Roku ( (ROKU) - Get Free Report) is not growing fast enough for the next evolution of digital media streaming. That’s a big problem for shareholders.
The Los Gatos, Calif.-based company reported Wednesday that members watched 1 billion fewer hours of digital content on its platform during the second quarter. To make matters worse Roku is now losing money on its popular media players.
Investors should use strength to sell Roku shares.
That is not going to be a popular opinion. Roku has been a great investment for a long time. Unfortunately for shareholders the streaming media business is evolving and Roku’s stranglehold as a gateway for cord-cutters is coming to an end.
At one end of the spectrum Alphabet ( (GOOGL) - Get Free Report) and Amazon.com ( (AMZN) - Get Free Report) have decided to price their hardware offerings ultra-aggressively. The new $50 Google TV dongle has been a huge hit with tech reviewers and users alike. The Amazon Fire TV is fully integrated with the Alexa voice activated ecosystem. It is also the most popular streaming device platform in the country.
The other big competitor is Samsung. Smart TV Plus is a completely free streaming service built into every Samsung smart TV. It’s like Roku, except without a dongle, wires and a learning curve. During the second quarter Protocol reported that Samsung quietly launched the service on the web, too.
In a letter to shareholders Roku managers blame the end of lockdowns for the decline in streaming hours. They argue the choice to absorb rising component costs, resulting in negative 5.9% margins for new media players, was an effort to insulate consumers.
Don’t believe it. If demand was stronger they would have raised prices.
According to a story at Variety, analysts at Morgan Stanley expected active accounts at Roku to reach 56.2 million during Q2. The reported number was only 55.1 million.
The situation is not going to improve any time soon.
The era when cord cutters needed a Roku is begin streaming is over. Google and Amazon devices bring all of the functionality, lower costs and integration with large ecosystems that include home automation. Samsung simply added a software layer to its best-selling TVs.
Roku reported Wednesday that revues grew to $645 million in Q2, a gain of 81% year-over-year. It is not enough. Competition is coming and Roku can’t win.
