Analysts Are Increasingly Bearish on Roku. Should Investors Be Worried?

Another day, another stock slump. Analysts have been dogpiling on Roku (NASDAQ: ROKU) in recent days, doling out dueling downgrades to the streaming pioneer. Late last week, Guggenheim analyst Michael Morris downgraded Roku from to "neutral" from "buy" and slashed its price target from $77 to $72. Not to be outdone, Citi Research analyst Mark May downgraded the stock from "neutral" to "sell" on Monday. Both analysts cited recent developments in the streaming landscape as the reasons for their bearish moves.

So what has the denizens of Wall Street falling all over themselves to dump Roku stock? In a word: competition. Apple (NASDAQ: AAPL) recently launched a plethora of offerings in its services segment, with the headliner being its long-awaited streaming service. In addition, (NASDAQ: AMZN) is reportedly planning expanding its free, ad-supported streaming service to compete directly with services like Roku and Hulu.

Should investors be concerned about these recent developments, or is it much ado about nothing? Let's look at the details to see what it means for Roku.

Apple joins the streaming fray

Late last month, Apple announced details about its long-rumored streaming service. The new subscription service -- dubbed Apple TV+ -- will feature a growing list of original content from a host of Hollywood elite including Oprah Winfrey, J.J. Abrams, Jennifer Aniston, Steven Spielberg, and more. Additionally, customers will be able to subscribe to third-party channels such as HBO, Starz, Showtime, and CBS All Access.

The streaming service is expected to launch in the fall of 2019, though Apple has yet to announce the cost of the offering. The format seems eerily similar to that of Amazon Prime Video, which offers viewers original content, a host of older third party programming, and access to third party channels like HBO, Starz, Showtime, and CBS All Access. Sound familiar?

Amazon's further incursion into streaming

Early this year, Amazon announced the debut of Free Dive, a free, ad-supported service from its wholly owned subsidiary IMDb, which was designed to compete directly with the likes Roku and Hulu. The service is available on Amazon's Fire TV devices and recent reports suggest that Amazon is planning a significant expansion of its ad-supported streaming option. Now, Amazon wants to introduce a number of additional channels, as well as adding news programming, according to a report from Cheddar.

Amazon has been seeking big commitments from advertisers to support its expansion, according to the report, which would offer additional channels with free access to movies and television shows for those who don't object to commercials. The new project wouldn't include the Amazon original programming that's available to Prime Video subscribers, which would remain exclusive. The service would be available on Fire TV devices, which currently boast about 30 million active users. For perspective, Roku currently has about 27 million viewers. Amazon plans to use sales data from its customers to target ads, though it won't share that data with advertisers. The service expected to debut on Fire TV devices this fall, according to the report.

What's an investor to think?

While Apple can never be discounted as a threat, Roku has been able to thrive, even amid competition from the likes of Amazon Prime. The new Apple TV+ service, at least at first glance, seems very similar. Roku's free, ad-supported platform targets a very different demographic, so the offering from Apple doesn't seem like much of a threat.

Amazon's plan to expand its existing ad-supported offering would present much greater competition, but it's important to note that the company hasn't even confirmed its intentions. Roku recently added premium subscriptions to The Roku Channel including HBO, Showtime, Starz, Epix, and others, aggregating content on a user-friendly interface, which seemingly counters that threat.

Roku also staked its claim by creating an operating system that was developed specifically for televisions, and it's now used in one out of every four smart TVs in the U.S., though the company has yet to tap into a significant international opportunity that remains. Also, while Apple and Amazon are focusing on bringing customers into and serving their respective ecosystems, Roku remains agnostic, giving it something of an advantage.

While threats from big tech should never be taken lightly and the situation bears watching, Roku is in a position to hold its own -- at least for now.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena owns shares of Amazon, Apple, and Roku. The Motley Fool owns shares of Amazon and Apple and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.