Roku facing 'challengers on all flanks' – analyst

Roku continues to grow revenue, active users and streaming usage on its platform. But concerns about rising competition and an "uneven ad market recovery" are piling pressure on Roku's stock.

Some analysts are concerned that Roku will have trouble holding its market share as consumers continue to gravitate toward smart TVs and away from streaming media players. And while the smart TV platform arena is already intensely competitive, Roku could face even more pressure if Walmart's reported interest in Vizio transforms into an acquisition.

Should Walmart make a move for Vizio, "their unrivaled relationship with the world’s largest brands and their treasure trove of shopping data will also present a significant challenge to Roku’s incumbency," MoffettNathanson analyst Michael Nathanson warned in a research note (registration required).

Roku's advertising business is being similarly pressured as Netflix and Disney broaden their respective ad-supported streaming businesses and as Amazon Prime Video shifts its base tier to an ad-supported model.

Roku could be 'squeezed'

"Recently, we believe that there is a strong and growing body of evidence that supports the view that Roku is at the precipice of being squeezed by the emergence of challengers on all flanks," surmised Nathanson, who maintained his "sell" rating on Roku shares.

He also found it odd that Roku's advertising revenues aren't growing faster in the face of dropping linear TV ratings and recent Hollywood strikes that "crippled" the production of scripted content.

"[W]e worry that, despite the collapse of linear advertising, this could be as good as it gets," Nathanson wrote.

Yet Roku is still growing in most areas. The company posted Q4 revenues of $984.4 million, up 14% year-over-year – better than the $968.2 million expected by analysts and better than Roku's earlier quarterly guidance of $955 million. Roku also swung to a Q4 net loss of $78.3 million, narrowed from a net loss of $237.1 million in the year-ago quarter.

Roku's Platform division, which includes its advertising business, rose 13% to $829 million, while Devices climbed 15% to $156 million.

Roku also added 4.2 million active accounts, raising its total to 80 million. Total streaming hours jumped 22% to 29.1 billion. Roku said its users streamed 106 billion hours during 2023 (the first time it has eclipsed 100 billion in a full-year period) and 4.1 hours per day per account in Q4 – both records.

'Challenging' outlook

However, the company warned of a "challenging" media and entertainment outlook for 2024, and forecasted Q1 revenues of $850 million along with a bigger-than-expected loss of 90 cents per share.

"While we remain mindful of the challenging macro environment and uneven ad market recovery, we plan to increase revenue and free-cash flow and achieve profitability over time," CFO Dan Jedda said Thursday on Roku's earnings call.

Roku shares were down $20.40 (-21.59%) to $74.10 each in Friday morning trading.

Streaming industry is 'maturing'

Roku CEO Anthony Wood said Amazon's decision to amp up its advertising business was another sign that the streaming business is growing up and becoming more focused on creating long-term, profitable businesses.

"One of the trends that's happening right now in the streaming world is that the streaming industry is maturing," Wood said. "A couple of years ago, all the streaming services were just very focused on driving subscribers, at almost any cost. Now the industry is very focused on building sustainable, thriving businesses … For me, it's a sign that the industry is really starting to mature."

Wood likewise believes the streaming industry's greater emphasis on ad-supported models will only "accelerate the shift of ad dollars moving to streaming."