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Who's Winning the Streaming Wars? None of the Usual Suspects.

By Anders Bylund – Feb 15, 2020 at 10:29AM

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The easiest way to bet on huge returns in the streaming-video market is to invest in the emerging sector's infrastructure specialists.

The only winning move is not to play, to quote Hollywood classic WarGames.

The video-streaming wars have barely even started, but the biggest winner is already obvious. It's not Netflix, it isn't Walt Disney (DIS -0.75%), we're not talking about Apple, and AT&T's HBO Max really isn't much of a contender. Instead, streaming-platform specialist Roku (ROKU -0.52%) is in a position to benefit as each content creator tries to one-up all the others.

Data from Roku's latest earnings report

To illustrate this idea, let's take a look at Roku's fourth-quarter report.

The company grew net revenues 49% year over year to $411 million, comfortably ahead of Wall Street's consensus estimate of $392 million. Roku added 4.6 million active accounts in the fourth quarter, good for a 36% increase over the year-ago reading. On top of that revenue-boosting growth trend, each user also spent more time using Roku's media-viewing platforms. The average Roku user consumed 317 hours of Roku-driven content during this quarter, up from 269 hours a year earlier.

Deeper audience engagement is good for Roku because this data helps the company negotiate higher rates for its advertising services. Roku is proving its worth as a premium eyeball magnet, powered by some of the world's most reliable media brands on a user-friendly platform that makes it easy to skip between different streaming platforms. So when the House of Mouse launched the Disney+ service, the company paid up to promote that launch on the start-up screen that's the first thing Roku users see after powering up their Roku-driven smart TVs and set-top boxes:

A smart TV displaying the Roku start-up screen, including a large ad for Disney+.

Image source: Roku.

The view from the inside

You don't have to take my word for these ideas. In the fourth-quarter earnings call, Roku CFO Steve Louden shared this analysis of the Disney+ launch:

As new services come on, that's good overall for Roku in terms of driving folks to the platform and increasing engagement. And certainly, our business models are set up so that when partners create value on our platform, and we're well positioned to bring them a large audience in best-in-class tools that they can create value, we can share in that.

Senior VP Scott Rosenberg explained how several successful streaming services can coexist on Roku's platform, hurting the old-school cable TV system more than they ever threaten each other:

So generally, these new services are additive. They create yet more reasons for consumers to cut or shave the cord and spend more time streaming. And we've seen that for years now across lots of new service launches. I would say that's the case here as well. It's stealing time from linear, from traditional TV viewing rather than from streaming.
A roll of hundred-dollar bills stands on top of several coin stacks, casting a shadow shaped like a rocket taking off.

Image source: Getty Images.

The upshot: Roku will skyrocket from here

Don't get me wrong -- I'm sure we'll see some big winners among the streaming services, as well. My money is literally on Netflix and Disney, based more on these companies' legendary ability to adapt to changing market conditions than on the quality and quantity of their content portfolio titles.

But if you don't want to wade into those murky waters to separate the victors from the wannabes, Roku is a no-brainer play on the shared infrastructure of most media-streaming hopefuls. No matter who walks away with the streaming-platform trophy -- and it will probably be several companies sharing that market in the end -- Roku benefits from all of their content-creation efforts.

Roku's whole may be greater than the sum of the video-streaming parts. I think we're looking at a future media giant going through the early innings of streaming media evolving into an industry-standard media-delivery method on a global level. So far, substantially all of Roku's revenue comes from the U.S. market; Roku's growth prospects are absolutely massive.

Anders Bylund owns shares of Netflix and Walt Disney. The Motley Fool owns shares of and recommends Apple, Netflix, Roku, and Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short April 2020 $135 calls on Walt Disney. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Roku Stock Quote
$59.39 (-0.52%) $0.31
The Walt Disney Company Stock Quote
The Walt Disney Company
$100.04 (-0.75%) $0.76
Netflix, Inc. Stock Quote
Netflix, Inc.
$240.02 (1.39%) $3.29
Apple Inc. Stock Quote
Apple Inc.
$145.43 (-0.66%) $0.97
AT&T Inc. Stock Quote
AT&T Inc.
$15.32 (-2.12%) $0.33

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