There was plenty of fallout on Tuesday following Apple's (AAPL 1.62%) surprising move to price its upcoming streaming-video service aggressively. Apple TV+ will hit the market in November at $4.99 a month, half of what some were expecting. It will also offer buyers of new Apple devices a free one-year subscription to the service.
It's easy to see why Apple's promotional pricing took its toll on Netflix (NFLX +0.27%) and Disney (DIS 2.40%), with each stock down 2.2% in Tuesday's trading. Whether Apple is disrupting the value proposition of premium streaming platforms or locking up anyone buying an iOS or Mac for at least a year, Netflix and Disney can't be pleased. However, the real loser in this arena was Roku (ROKU 2.11%), as its stock took a 10.5% hit on Tuesday.
Image source: Roku.
For those about to Roku
We can't pin all of Roku's slide on Apple. As one of this year's hottest stocks -- a five-bagger in 2019 when the trading day began -- Roku was already taking a breather by Tuesday's opening bell. The shares were down 5% before Apple even started its media presentation. However, the stock's slide through the final three hours of the day clearly had Apple TV+ written all over it.
The market's knee-jerk reaction may seem overdone but is understandable on the surface. Apple TV+ will be on Roku's operating system, but if Apple is heavily recruiting on its end for new users -- exactly what's happening by giving the hundreds of millions of annual buyers of Apple gadgetry a free year -- there won't be a need to offer Roku referrals for leads.
Disney+ is already doing a good job of locking folks up for two to three years through deeply discounted promotions for its D23 fan club and credit card holders willing to prepay. If Apple and Disney won't be lining Roku's coffers the way that other services do to stand out, it's easy to see why retail investors are having second thoughts about the potential exponential growth of Roku's platform revenue.
Thankfully for Roku investors, there's more to this story. Apple and Disney are active marketers across all media outlets. Of course, they're going to be some of the more active advertisers on Roku, especially since both will be launching just ahead of the active holiday shopping season. They need to make up for lost time by making sure that they do more than market to the biggest fans of their brands, and that's where Roku will help.
The more promising scenario -- and this one benefits Roku and Netflix -- is that the one-two launch of Apple TV+ and Disney+ in the first half of November will push more people to cut the cord. You can be sure that Roku streaming players and third-party smart TVs powered by Roku's operating system will be among the biggest sellers in consumer electronics over the holidays.
A lot of people will be cancelling their costly cable and satellite television plans by Christmas and early into 2020, and that's a rising streaming tide that will lift all ships. If you're still paying for cable television, it's fair to say that you can afford a package of several of the leading streaming services and still come out ahead financially. There may be some rumblings right now when it comes to investing in consumer discretionary stocks -- with fears on how the slices will be carved out -- but the narrative changes when you realize that the pie itself is about to get a whole lot bigger. You're going to need a bigger bib.
A potential price war among the major streaming services actually benefits Roku, as it drives more people to the platform. Streaming services were already cheap relative to traditional pay-TV options, but if the technology gets even cheaper, you're going to see the same migration that we've seen across all major tech innovations that have struck a chord -- or in this case, perhaps a cord -- with the masses.
Investors bailing on Netflix, Disney, and Roku got the Apple TV+ event all wrong, but only time will tell.
