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Even With Apple TV+, Roku Can Thrive

By Daniel Sparks – Apr 1, 2019 at 1:51PM

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There's a reason the tech giant's new streaming service will be available on Roku's platform.

KeyBanc Capital Markets analyst Evan Wingren raised his price target for Roku (ROKU -2.85%) stock to $76, up from $63, over the weekend.

"We recommend owning ROKU. We see it as a unique platform play on the growth in long-form, streaming video, with a strong competitive position and improving fundamentals," said Wingren (via Barron's). In addition, Wingren noted that Apple's (AAPL -1.95%) new streaming-TV service -- scheduled to launch this fall -- is unlikely to have a meaningfully negative impact on Roku's business.

While Roku's $7.5 billion market capitalization may pale in comparison to Apple's $890 billion market cap, Apple's streaming-TV efforts don't appear to be a threat to Roku. Indeed, Roku looks poised to thrive.

Reese Witherspoon and Jennifer Aniston on stage during Apple's TV service launch.

Image source: Apple.

Roku's platform advantage

The biggest reason Roku can stand its own against Apple's new streaming-TV service is because the company's business model is built around a platform for supporting all streaming content. This includes juggernauts like Netflix, Disney's majority-owned Hulu, and Amazon's Prime Video. The more content available on Roku's platform, the better.

With around 1 in 5 U.S. households using the Roku platform for a portion of their viewing, the company is positioned to benefit from the rising popularity of connected TV, as most new services will want to offer their content on Roku's platform. Indeed, Apple itself plans to make its new service, named Apple TV+, available on Roku. 

As Roku CEO Anthony Wood explained in a recent interview with CNBC when asked about whether Apple TV+ could have a negative impact on Roku:

Apple's service is another example of the high-quality content that's coming to streaming. And one of the issues with streaming, of course, is, 'How do I get my content on a television?' -- and Roku is the leading streaming platform for televisions in the U.S.

Roku can not only profit from other subscriptions on its platform -- by taking a share of revenue from subscriptions in which users sign up for third-party services through its platform -- but it can also make money from advertising on the ad-supported content it offers.

Apple's new service may benefit Roku

It stands to reason that Apple's new service could actually benefit Roku. Bringing Apple TV+ to Roku will give its users incremental confidence in the content available on the platform. Further, the availability of Apple TV+ on Roku diminishes the value proposition of Apple's set-top box hardware: Apple TV. With Apple TV+ coming to Roku, more consumers who previously may have only considered buying an Apple TV set-top box may now consider making the Roku platform their default connected-TV experience.

The more content available on Roku's platform, the more entrenched users will become in the company's ever-growing ecosystem. In addition, more high-quality content from companies like Apple will only accelerate the transition to streaming TV and strengthen Roku's business.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, and Walt Disney. The Motley Fool has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple. The Motley Fool recommends Roku. The Motley Fool has a disclosure policy.

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