A cruel summer for Roku (ROKU 0.15%) investors seemed to get worse last week when Amazon.com (AMZN -1.64%) introduced a new line of Fire TV flat-screens. Priced aggressively -- starting at $369.99 -- the Alexa-fueled HDTVs that include the first-ever sets built by Amazon itself are going to sell well in the coming months. The question here is if they will take market share from Roku or if the migration will be limited largely to folks who don't have a dedicated smart TV just yet.
Roku stock has been retreating on the news, and it's easy to see why at first. Amazon is a monster that isn't afraid to subsidize hardware to gain new users. "Your margin is my opportunity," is one of Amazon founder and former CEO Jeff Bezos' most enduring quotes.
However, a couple of analysts did step up after the Amazon announcement to back up Roku's market position. It may seem like a normal defense mechanism for Roku-bullish Wall Street pros to come to the streaming media pioneer's side, but their arguments do make sense.
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Going for the power button on the Roku remote control
Making lemonade out of lemons, KeyBanc analyst Justin Patterson claims that Amazon's announcement slides in as an "incremental positive" to Roku's competitive position. He doesn't see any material differences between the specs on the new Fire TV devices and what Roku is already offering. He also feels that the third-party manufacturers of smart TVs with Roku's operating system preinstalled match up well on the pricing that Amazon introduced last week. Consumers aren't likely to perceive a need to go with a Fire TV flat-screen, so the rollout won't change the already competitive landscape where Roku is faring so well.
Nicholas Zangler at Stephens agrees. Fears that Amazon was going to price its smart TVs below cost in an effort to increase the audience for its ecosystem failed to materialize. Amazon may very well have some ridiculous Black Friday and Cyber Monday deals on these sets come late November, but the entire industry is promotional that time of year anyway.
Roku OS is installed in 38% of the smart TVs shipped in the U.S. market, and that's not likely to change just because Amazon is now making TVs. If anything, Amazon actually making HDTVs may make some of its partners think twice about supporting Fire TV. A big draw for Roku -- for TV manufacturers, streaming service providers, and ultimately consumers -- is its agnosticism. Roku plays nice with thousands of popular apps, and it will continue to be the partner of choice for TV makers, platform operators, and families perched on living room couches.
We also shouldn't put too much weight on the TV itself. I own a pair of Fire TV HDTVs. They both have Roku dongles in their HDMI ports to fuel my streaming experience. The dongle is the key. These plug-in devices that start as low as $20 are cheap enough to be replaced as needed. They also offer the portability that a TV does not. If you travel, you will quickly embrace the stick over the built-in operating system of a TV.
Folks also aren't necessarily in the market for a new TV. A TV -- even a smart one -- should last for several years before it needs to be upgraded. A new dongle at less than 10% of the cost of a new set does the trick in most cases.
It's obvious why Amazon wants Fire TV to be a bigger force here. Roku's 55.1 million active users are averaging more than three hours a day of streaming. Marketers also crave ways to reach a streaming audience that spends much of that time on commercial-free services. Ad revenue per user has soared 46% for Roku over the past year, and it will continue to climb as connected TV advertising grows as a chunk of marketing campaign budgets. However, Amazon's just putting out a TV isn't going to unseat Roku from leadership within the ranks of streaming service stocks. If all Amazon does with its new TVs is draw attention to the digital migration process, it could be a win for all the industry players.
