Amazon (AMZN US) is rumored in the planning process of rolling out a free streaming service supported by Ads according to the Online Media Source The Information.
The new service for Fire TV would be separate from Amazon’s subscription based Prime-Video Services. According to the report Amazon is mostly focused on licensing older TV shows from major studios to initially fill-out their library.
This potential news could be massive risk for ROKU (ROKU US) the free streaming site which offers consumers streaming TV that is supported by Ads as well. ROKU is currently the market leader with over 37% market-share up from 33% 2 years ago. As reference point Amazon is at 28% market-share up from 16% 2 years ago.
ROKU has been on tear since its IPO last year. The stock is up more than 4x to $62/share from IPOing at $14/share. This is based on the secular bull thesis that OTT (over-the-top) streaming is big part of future of media consumption. It has been delivering massive customer and top-line growth, in addition increasing its gross-margins. All of this on top of increasing its guidance for 2018. The stock is currently trading at its all-time high.
Source: Yahoo Finance
With the potential Amazon entering the market, ROKU could find itself on the defensive. Considering that ROKU is trading ATH, as an investor it is important to keep in mind the risk-reward.
On the other hand, ROKU is rumored to be an excellent take-over target. One main potential rumored acquirer is Netflix (NFLX US). ROKU’s CEO/Founder used to be a senior executive at Netflix and two former Netflix executives are board members of ROKU.
Netflix is already testing ads between episodes at various shows. CNBC reported this is only a trial-period as of yet and focused on delivering targeted ads to its viewers. For Netflix, ROKU could be an interesting target, with regards to their previous relation and that ROKU is already the biggest player in the market. This would automatically make Netflix a player in the free ad-based streaming TV, and compete with Amazon. Furthermore, other companies could decide to look as a target, just on the basis of all the data-info they have about their customers.
The current short-interest (number of shares as % of outstanding) is about 7% which is fairly high and decent amount of investors believe ROKU could have more challenging times ahead.