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Should Roku Investors Worry About Amazon's IMDB?

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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. 

Latest Ratings for AMZN

DateFirmActionFromTo
Sep 2019MaintainsOverweight
Sep 2019MaintainsOutperform
Aug 2019AssumesBuy

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