In this segment from MarketFoolery, host Chris Hill and Million Dollar Portfolio's Matt Argersinger try to figure out what makes Roku (ROKU 3.77%) worthwhile. The streaming video interface system is good at bringing together all the apps and services we enjoy, but it's not as obvious a value proposition as, say, the massive content offerings of Netflix (NFLX 9.29%). Yet the news that Roku would be offering access to Disney's (DIS 3.70%) new ESPN Plus streaming service was enough to please investors. The deal was clearly a smart move for Disney. But why is Roku getting so much love?
A full transcript follows the video.
This video was recorded on April 17, 2018.
Chris Hill: We're going to stick with video, go to a company with a much smaller market cap, although it is getting larger today, and that's Roku. Roku shares are up 12% this morning on the announcement that Roku is going to offer access to Disney's new ESPN+ video streaming service. On, the surface, that just seems like a good move for Roku, and I could see the stock bumping up a little bit on that partnership. 12% seems a little high to me, but, you tell me.
Matt Argersinger: No, I don't get the move, either. In fact, I don't really get Roku. [laughs] Maybe we should start there. Roku is essentially a nice interface for you to access all your entertainment apps in one place. There's other things you can do. But what I don't get is the value proposition of Roku vs., say, my PlayStation 4, which does a lot of the same things, or any smart TV nowadays, which can bring together all of your apps, as long as they're connected to a broadband connection. We're going to have Dylan Lewis on the show at some point and tell us, because I just don't understand this business well enough, and I can't understand why it's trading out the valuation it is.
Hill: And when you're looking at Netflix's business model, it's really easy to understand. It's a subscriber model. Roku's is a little tougher. Overwhelmingly, Roku is streaming a lot of Netflix, and that's great if you're Netflix. Roku is not really making nearly the amount of money off of that streaming that Netflix is. By the way, this seems like a pretty nice move for Disney, because they are looking to get the ESPN+ app into as many people's devices as possible, so I get why they're doing it. I'm not really sure where the value proposition is for Roku.
Argersinger: No, I don't understand where they sit in the value chain of all this. They are, in my view, a hardware device, even though it's kind of built in nowadays. But, it's nothing beyond Amazon Fire TV or Apple TV or just a smart TV. I don't understand, I don't get, competitively, where they sit. Now, as you said, Disney, with their ESPN+, similar to Netflix, they're just trying to get it in front of as many people as possible and try to hook in subscribers. And Roku is a popular platform right now for doing that. I don't see a lot of long-term value for Roku, but right now a lot of people use Roku. And now that that's there, that's good for Disney.
Hill: Absolutely, it is good for Disney. And I think what's similar in the case of Netflix and Roku and really all of these -- Hulu, Amazon Prime -- they're all trying to not just get as much content as they can without drastically overpaying for it, but they're also trying to appeal to as many pockets as they can, as many demographics. So, in the case of Netflix, it's -- I'm right there with you,Cloverfield , that's not my type of movie, but I'm interested in the stand-up specials. I'm interested in original series, as well as older series. Right now, in my house, as a family, we're binge-watching Parks and Recreation , which is great, because everyone can enjoy it. But, I think in the case of Roku, everybody knows ESPN. That's a brand that they don't have to spend a lot of time and energy explaining to people. So, again, it seems like a plus, I just don't know if it's a 12% plus.
Argersinger: I totally agree.
Hill: By the way, speaking of ESPN, I should mention, on Motley Fool Money this weekend, our guest is going to be Jim Miller, who may be best known for writing the ESPN book, Those Guys Have All the Fun . He also has the Origins podcast. The first season was about Curb Your Enthusiasm and the second season was about ESPN. Later this week, going to be sitting down with him, and if anyone knows ESPN inside and out, it's Jim Miller, so we're definitely going to be digging into the new app and what it means for Disney and more.
Argersinger: Do you think you're going to give it a try, ESPN+?
Hill: I think at some point, I probably will, but I'm still one of those people who has cable in the home, so I already have ESPN. I need more time, that's what I need. If I had more time --
Argersinger: Well, yeah. And that's a great point with all of these things. They're all competing for our time. There's a limited amount of time.
Hill: By the way, how great was that line from Reed Hastings, when talking about competition, and he said, "Sleep." [laughs]
Argersinger: That's a hall-of-famer.