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Where does market power come from? One answer: operating a tax booth through which video content providers must pass if they want to reach their customers.
This comes to mind when considering what happened to Roku and its investors. How come? According to the Wall Street Journal, this streaming media player manufacturer controls 38% of the market for such players.
Additionally, Roku uses that market position to demand a chunk of advertising revenue with the streaming apps running on its hardware.
In fact the Magazine reports that Roku used its market power to end December 16 an eight-month deal with Warner Brothers to carry out their HBO Max service just before the release of the “1984 Wonder Woman”. launched simultaneously in theaters and on HBO Max.
Roku stock is up 140% in 2020 as of December 16 – as is the NASDAQ
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- Recent strong growth;
- Sustainable growth through the use of market power; and
- A. Create the future Head.
Roku Negotiates handles HBO Max behavior
Warner Brothers plans to release the latest Surprise woman pic on Dec. 24. But it wasn’t until Dec. 16 that Warner Brothers and Roku reached contracts to approve HBO Max on 46 million Roku active fans.
Details of his deal with HBO Max have not been released. The Journal noted that Roku – which began negotiations with HBO Max in May when the latter launched – wanted WarnerMedia to provide programming to The Roku Channel.
Citing anonymous sources, the Journal reported that Roku waived that requirement in exchange for compensation from other sources – possibly ad or membership income. Variety statement that Roku’s standard terms with content partners are to “accept 20% of membership fees and 30% of advertising investment.”
Roku was happy with the deal. Scott Rosenberg, SVP of the Roku platform business, said, “We believe all entertainment will be broadcast, and we are thrilled to partner with HBO Max to grow their amazing library of brands introducing iconic entertainment and a large slate of direct-to-stream theater releases. to Roku homes with more than 100 million people who made Roku the No. 1 TV streaming platform in America, ”it reportedly said.
With the lack of detail, are investors too optimistic? Here are three reasons why Roku shares may double.
Recent strong growth
Roku has been unhappy with the slowdown in advertising due to the pandemic. As the Magazine reported, Roku started selling streaming devices but now makes its money selling ads in the more than 10,000 streaming apps it carries – typically gaining a percentage of space advertising.
Of course the decline in advertising sales this year has been huge. EMarketer predicts that the U.S. media industry will spend 9.3% less than last year – or $ 6.28 billion by the end of 2020, while he expected the U.S. entertainment industry to cut advertising spending their digital 6.9% to $ 7.03 billion.
But Roku was disappointed – there was a 73% increase in third-quarter revenue. The hours streamed on Roku grew 53% to 41.7 billion in the first nine months of 2020 and Roku added nine million new active subscribers.
While Roku is losing money and burning through free cash flow, according to Morningstar, growth in that third quarter is far faster than Roku ‘s average revenue growth rate of 41.6%.
Sustainable growth through the use of market power
Roku’s largest segment of the market for streaming media players puts it ahead of major competitors such as Apple
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The simple answer is that the streaming media player market is the only egg in Roku’s basket but it is a tough line of business for those other competitors.
As David Wertheimer, former president of digital products at Fox Networks Group and now a media and technology investor, told the Magazine, Roku’s aggression stems from the fact that “TV streaming whole industry. It is understandable that they are sticking to their guns. The reality of the game is that they have been working. ”
Roku is fighting fiercely with content providers to take advantage of its market power just as cable companies did with the TV networks. Moffett Nathanson analyst Michael Nathanson said: “[Roku has] sort of cable operators as gates, ”said the Magazine.
Roku also played hardball with NBCU in a deal to gain access to its Peacock app on Roku’s streaming platform and Roku-enabled TVs. An agreement was reached on Sept. 18, according to Variety, in which NBC extended content will be added to the supported free Roku channel. Although terms were not released, Roku said it had negotiated a “meaningful partnership around advertising.”
Contracts like this create a clear growth picture for Roku. Benchmark analyst Daniel Kurnos raised his price target to $ 410, according to Barron’s. Kurnos argued that the deals with WarnerMedia and NBCU show that Roku ‘s bargaining declines remain strong – contrary to bearish analysts’ predictions that Roku’ s bargaining power will fall.
Kurnos expects Roku platform revenue in the last quarter of 2020 to exceed $ 20 million from its previous forecast of $ 411.7 million with the help of higher prices.
He is also optimistic about the performance of Roku 2021, saying, “We are now ahead of a consensus for 2021 on all metrics, effectively reflecting the impact of flow through and a slightly more optimistic baseline for basic prices even as the market moves slightly backwards. more normal levels, ”Barron wrote.
Roku’s Create the future Head
If you are considering investing in any company, it will be helpful in understanding the strategic mind of its CEO. That’s one of the key conclusions of my new book, Goliath blows back.
It is the most desirable strategic mindset for investors Create the future – a director like Jeff Bezos or Reed Hastings. Leaders like this continue to create the key product or services in the industries they are aiming to grow.
Anthony Wood, founder and CEO of Roku, certainly fits the bill. Roku – which he founded in 2002 – is his sixth company and, as the Journal said, has strong control. Its 68% voting power gives it nearly $ 4.9 billion worth of Roku stock.
Wood has revitalized the entertainment industry. He invented the digital video recorder to keep up with StarTrek events – founding ReplayTV in 1997. Sadly for Wood, TiVo ran past it, became a well-known brand, and went public.
He then invented a streaming media player. His Roku fans saw him as ambitious and high-spirited without finishing second place again. Wood – who worked at Netflix
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The Journal reports that Wood is in high demand privately and has devolved the negotiations between Roku and the content providers to Rosenberg.
Bear’s case against Roku
Not everyone is so bullish on Roku.
On November 9, Neil Macker, Morningstar’s Chief Equality Analyst, launched Roku’s bearish cover age – 4.4% of its bog has been sold shortly since November 13. “No-moat rating and negative negative move” not seen. Roku maintains its strong bargaining power.
Nonetheless, Macker assumed that by 2030, its operational accounts will double to nearly 113 million while streaming hours will pop nearly five times to 286 billion annually. With his 90% price increase from the date of his report, he concluded that Roku shares were being overvalued.
If it goes above analysts ’expectations for the fourth quarter as Kurnos expects, the Roku bears will wish they had gone into hibernation.