Should Roku Investors Worry About Amazon's IMDB?
Should Roku Inc (NASDAQ: ROKU) be concerned with reports Amazon.com, Inc. (NASDAQ: AMZN)'s Internet Movie Database subsidiary may launch a rival streaming service? KeyBanc Capital Markets has a theory.
The Analyst
KeyBanc Capital Markets' Evan Wingren maintained an Overweight rating on Roku with a $67 price target and a Sector Weight rating on Amazon with no assigned price target.
The Thesis
The Information reported Tuesday that Amazon is exploring a free-to-use, advertising-supported video service that could be used on its Fire TV streaming video devices, Wingren said in a Wednesday note. (See the analyst's track record here.)
At the very least, the report is a "headline negative" for Roku, although the TV streaming business is large enough for both Roku and IMDB to be successful, the analyst said.
Roku's ad business is estimated at around $200 million over the past year, while the linear TV ad business in the U.S. alone is more than $70 billion and more than $200 billion globally, Wingren said. Roku's stock is priced at 13 times 2019 EV/GP, which implies it doesn't have a dominant market share, he said.
Reports of competition from IMDB would have been an issue for Roku investors if the stock was trading at a valuation that implied market dominance, the analyst said.
IMDB can create a "very compelling value proposition" to advertisers and execute well on a new product, Wingren said. This makes Amazon a high-quality competitor to Roku, but "there is plenty of room" for both companies to co-exist and drive value, he said.
Price Action
Roku were trading lower by 3.84 percent Wednesday morning, while Amazon's stock was up 1.19 percent.
Related Links:
Amazon, Best Buy Smart TV Partnership Hurts Roku
What Alexa On Amazon's Fire TV Means For Netflix, Roku, Spotify, Comcast
Photo courtesy of Roku.
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