Roku's content aggregation TV OS platform makes it a winner regardless of the outcome of the streaming wars. With all of this being said, Netflix's issues are very much idiosyncratic, and they have nothing to do with Roku. However, this will depend on the quality of Netflix's content, which has been waning recently. In my opinion, Netflix's existing subscriber base of 200M users and annual content spend of $20B should enable the company to survive the streaming wars and still be around five years from now. Then again, an attempt to monetize these users could backfire and lead to further subscriber losses. While management estimates suggest 100M users are using Netflix for free, I think this estimate is probably too high. Netflix's management is trying to address this threat by cracking down on password-sharing to improve monetization. If revenues shrink, content spending will have to shrink, and that would lead to more subscriber losses and so on. However, Netflix projected a loss of 2M subscribers in Q2, and if this trend continues, Netflix's revenues could start shrinking in the future. Rising content costs and a shrinking subscriber base are massive issues for Netflix: In Q1, Netflix's revenues grew by 10% despite losing 200K subs (due to price increases). For Netflix, the streaming wars are getting expensive, with multiple deep-pocketed rivals entering streaming and competing aggressively for market share (and subscribers). Recent price increases led to a surprise decline in subscriber count, reflecting weak pricing power. With Netflix's subscriber count reaching saturation levels in the United States, Canada, and EMEA regions, the company is struggling for growth. Roku also happens to have a rapidly-growing digital ads business line. For years, Roku has been out-competing the likes of Amazon ( AMZN), Apple ( AAPL), and Google ( GOOG) in the TV OS space, and despite being the market leader, Roku is getting no credit for its monopolistic powers as a gatekeeper. However, every 1 out of 3 smart TVs sold in the US is a Roku TV (TVs running on Roku's operating system). Many people still think of Roku as a low-margin streaming media player business that will be obsolete in a few years with the advent of smart TVs. I would say 'The Roku Channel' is a direct competitor of Netflix. As you may know, Roku is entering the content business with 50+ Roku Originals set to launch on 'The Roku Channel' in the next two years.
However, Roku's platform was purpose-built for digital advertising with the idea that all content will eventually be streamed. Netflix may bring an ad-supported tier to its streaming service soon. We want to be the safe respite where you can explore, get stimulated, have fun, enjoy, relax - and have none of the controversy around exploiting users with advertising. We’ve got a much simpler business model, which is just focused on streaming and customer pleasure. For Netflix to grow to a $5 billion-$10 billion advertising business, you need to "rip that away" from incumbents. I think those three are going to get most of the online advertising business. Google and Facebook and Amazon are tremendously powerful at online advertising, because they’re integrating so much data from so many sources. Here's how Reed Hastings put it back in Jan 2020. Before making a u-turn on advertising in their latest commentary, Netflix's management has taken a hard stance against entering the Ads business. Netflix's business model is quite simple - monetizing original and licensed content via paid subscriptions. While Roku is undoubtedly a play on streaming, both of these companies have very different business models.
This correlation is leading to losses in shares of other streaming-related companies like Roku, Disney ( DIS), Paramount ( PARA), etc. Hence, a slowdown at Netflix is being construed as a slowdown for streaming. Netflix is considered a bellwether for the streaming industry due to its industry leadership, scale, and global presence. However, Netflix's blowup is now dragging Roku down even further. After undergoing a violent valuation re-rating, Roku was forming a base in the $110-$130 zone. Over the last twelve months or so, we have seen a massive valuation contraction for stocks that were deemed to be pandemic plays, e.g., Zoom Video ( ZM), Roku ( NASDAQ: ROKU), Teladoc ( TDOC), and many others. Despite being a mega-cap stock, Netflix has simply imploded. Currently, Netflix is down by ~70% from its all-time highs recorded in November 2021. Hapabapa/iStock Editorial via Getty Images IntroductionĪfter reporting a net loss of subscribers for the first time in over a decade in its quarterly report on 19th April 2022, Netflix's ( NASDAQ: NFLX) stock nosedived by roughly 36% in a single trading session.
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