Market Overview

Should Roku Investors Worry About Amazon's IMDB?

Should Roku Investors Worry About Amazon's IMDB?
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Should Roku Inc (NASDAQ: ROKU) be concerned with reports, 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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Oct 2018JefferiesMaintainsBuyBuy
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