Wall Street is keeping its eye on Roku, a company hoping to challenge Netflix (NASDAQ:NFLX) and add its own twist to the ongoing streaming boom that’s generating billions in yearly revenue. Roku Inc (NASDAQ:ROKU) has enjoyed rather smooth sailing up to this point, skyrocketing at one point from $19 a share up to $48 after consistently strong earnings reports. Savvy investors aren’t diving fully behind Roku yet, however, as the company still has yet to prove it can beat established industry giants and woe over a large enough audience for long-term success.
Sizing up the competition
Roku’s biggest problem is its size, or lack thereof; for all of the heights its stocks have climbed, the company’s market valuation is still vastly smaller than established behemoths like Netflix, who can pour out new content in droves on a yearly basis. Many investors see Roku’s relatively positive stock performance thus far as too good to be true, and note that its long-term prospects are grim if it doesn’t eventually come up with a way to produce its own content capable of hooking in more viewers.
Others don’t even give Roku the benefit of the doubt, and expect the company to fall short far before its competitors have to worry about it. With some predictions being so grim as to predict a 40% plunge in the coming quarter, Roku will need to make better long-term investments in content creation and establish more lucrative streaming agreements to keep its financial backers confident.
Still, others aren’t so quick to write off Roku’s chances, and the company did enjoy a price target increase this week from Needham & Company analyst Laura Martin. The company’s smaller size means it’s not exposed to so many risk, its backers argue, and some investors remain confident that as services like Netflix and Hulu battle it out, smaller players like Roku can establish a niche audience for themselves and remain profitable.
Roku’s competition shouldn’t be dismissed out of hand, however; the company has its work cut out for it, and should be considered an underdog given its lack of clout when compared to the likes of Netflix. That company enjoyed climbing stocks recently, too, signaling that while the industry itself is clearly healthy, Roku is far from the only one growing, and won’t be able to scoop up more audience members without facing stiff competition.
Battle of the streamers
If Roku intends to win over new customers as consumers continue the great migration from televisions to phones and computers for streaming services, it will likely need to take the capital gained from its positive results in the financial markets and use it to generate more native content. Competing with industry giants will necessitate the company continuously innovates and retains its narrower, more dedicated audience, something easier said than done in the age of the fickle consumer.
Investors who are keeping their eyes on long-term dividends are likely wisely advised to keep their distance from Roku. The eager underdog shows some promise, but ultimately won’t fare well against the likes of Netflix and Hulu, and the wild ride its stocks have gone through thus far won’t last for long. Getting out while the going’s good will help you avoid the heartbreak and financial ache of the company’s eventual collapse as it finds itself unable to compete amongst established giants.
The streaming market is as contentious as property deals, and those without the necessary financial clout needed to pour out countless new shows each year often find themselves outgunned from the start. Roku’s positive performance thus far helps explain the general health of the broader streaming market, but also signifies how easily investors are won over by aspiring streaming services that allude to Netflix’s charms without ever really attaining its success.
Investors who believe in miracles may find a home in Roku, but those who understand the staying power that HBO, Netflix, and Hulu are enjoying should realize a hopeless battle when they see one. Roku is a bubble whose popping is long overdue, and, while it’s dazzled many investors thus far with its stellar stock performance, will crash as soon as the competition heats up.