Tag: Roku

4 Streaming Stocks to Buy Instead as Netflix Faces Lawsuit

Posted on by The INO.com Team

Streaming giant Netflix, Inc. (NFLX) finds itself in the center of a lawsuit over the upcoming Zack Snyder sci-fi epic Rebel Moon. NFLX has been sued for axing a gaming development contract based on filmmaker Snyder’s much-anticipated franchise, originally created as a “Star Wars” movie.

On September 28, 2023, Evil Genius Games filed a lawsuit against NFLX at the U.S. District Court in the Central District of California. Evil Genius Games is a popular developer and publisher of tabletop role-playing games based on major motion picture franchises.

The plaintiff has claimed that it had begun working with NFLX earlier this year to develop a tabletop role-playing game (TTRPG) based on Snyder’s “Rebel Moon,” and the game’s release was supposed to have coincided with the release of the first film’s streaming release on December 22, 2023.

According to the plaintiff, when the two parties started working on the project earlier this year, NFLX had a Rebel Moon movie script, a rough idea about the Rebel Moon universe, and a few cursory graphical assets. However, the script was missing background information vital to the story.

In the court documents, Evil Genius claimed that they not only did the work they were required to do but also supplied all the missing pieces and created a well-integrated backstory for the whole franchise. The plaintiff came up with a 228-page World Bible, a 430-page Player’s Guide, and a 337-page Game Master’s Guide.

Evil Genius had paid NFLX for a license and agreed to share profits from the licensed articles with NFLX. Despite having collaborated for months, NFLX decided to pull the plug on the project on May 25, weeks after the work was finalized and turned over to the streamer.

NFLX alleged that Evil Genius had violated the confidentiality agreement for “Rebel Moon” and violated its trust by sharing artwork at an industry trade show in March 2023. However, the plaintiff maintains that they had acquired NFLX’s permission to show artwork from the game at the 2023 Game Manufacturers Associate Exposition to “create some industry buzz” for the project.

According to the court documents, Evil Genius alleged that two NFLX employees were present at the event and helped hand out materials to retailers at the show. The legal filing states that “It became clear that Netflix was simply using the alleged breach and termination to hijack (Evil Genius’) intellectual property and prevent (Evil Genius’) from releasing the game.”

Evil Genius CEO David Scott said, “Our aim is to ensure our team is recognized for their fantastic work, and that we can release this game for millions of enthusiasts to enjoy. It’s disheartening to see Netflix backpedal on content that was jointly showcased and had received their prior consent. We urge our supporters to contact Netflix and Zack Snyder to push for the release of this game.”

While the allegations on NFLX are severe, the streamer has yet to comment on the lawsuit. In this scenario, investors could look to buy streaming stocks Comcast Corporation (CMCSA), The Walt Disney Company (DIS), Roku, Inc. (ROKU), and Paramount Global (PARA) as they are likely to benefit from NFLX’s bad press.

Let’s delve into the fundamentals of these stocks.

Comcast Corporation (CMCSA)

CMCSA is a media and technology company. Its segments include the Cable Communications segment, Media, and the Studios segment, which includes film and television studio production and distribution operations. The company has three primary businesses: Comcast Cable, NBCUniversal, and Sky.

CMCSA’s revenue grew at a CAGR of 4.6% over the past three years. Its EBITDA grew at a CAGR of 4.1% over the past three years. In addition, its EBIT grew at a CAGR of 4.7% in the same time frame.

CMCSA’s revenue for the second quarter ended June 30, 2023, increased 1.7% year-over-year to $30.51 billion. Its adjusted EBITDA rose 4.2% over the prior-year quarter to $10.24 billion. The company’s adjusted net income increased 4.8% year-over-year to $4.72 billion. Also, its adjusted EPS came in at $1.13, representing an increase of 11.9% year-over-year.

For the quarter ended September 30, 2023, CMCSA’s EPS and revenue are expected to decline 1.4% and 0.4% year-over-year to $0.95 and $29.73 billion, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters.

The Walt Disney Company (DIS)

DIS operates as an entertainment company worldwide. The company engages in film and episodic television content production and distribution activities. It operates through two segments, Disney Media and Entertainment Distribution; and Disney Parks, Experiences, and Products.

On September 11, 2023, DIS and Charter Communications (CHTR) announced a transformative, multiyear distribution agreement to maximize value for consumers and support the linear TV experience. Due to the deal, most DIS networks and stations will be restored to Spectrum’s video customers.

DIS’ revenue grew at a CAGR of 8% over the past three years. Its EBIT grew at a CAGR of 4.6% over the past three years. In addition, its EBITDA grew at a CAGR of 2.5% in the same time frame.

For the third quarter ended on July 1, 2023, DIS’ revenues increased 3.8% year-over-year to $22.33 billion. Its net loss attributable to DIS came in at $460 million, compared to a net income attributable of $1.41 billion in the prior-year quarter.

The company’s loss per share came in at $0.25, compared to an EPS of $0.77 in the prior-year quarter. Also, its cash provided by continuing operations increased 45.8% year-over-year to $2.80 billion. In addition, its free cash flow increased 775.4% year-over-year to $1.64 billion.

Analysts expect DIS’ EPS and revenue for the quarter ended September 30, 2023, to increase 153.2% and 6.4% year-over-year to $0.76 and $21.44 billion, respectively.

Roku, Inc. (ROKU)

ROKU operates a TV streaming platform. The company operates in two segments: Platform and Devices. Its streaming platform allows users to find and access TV shows, movies, news, sports, and others. The company also provides digital advertising and related services. In addition, it offers billing services; and brand sponsorship and promotions, as well as manufactures, sells, and licenses smart TVs under the Roku TV name.

On August 31, 2023, ROKU and TV Azteca announced a strategic partnership that will enable brands and agencies to purchase TV streaming advertising on the Roku platform in Mexico through TV Azteca.

ROKU’s International Advertising Vice President Mirjam Laux said, “The collaboration with TV Azteca increases our reach in the market and is a significant step to expand our growing ad sales business in Mexico. Working with TV Azteca, a trusted media group with deep connections to brands and advertisers, helps us to accelerate our advertising business and create more impactful marketing.”

ROKU’s revenue grew at a CAGR of 33.6% over the past three years. Its Tang Book Value grew at a CAGR of 32.3% over the past three years. In addition, its Total Assets grew at a CAGR of 31.1% in the same time frame.

ROKU’s total net revenue for the second quarter ended June 30, 2023, increased 10.8% year-over-year to $847.19 million. Its total gross profit rose 6.5% year-over-year to $378.27 million. The company’s net loss narrowed 4.2% year-over-year to $107.60 million. Also, its loss per share narrowed 7.3% year-over-year to $0.76.

Street expects ROKU’s revenue for the quarter ended September 30, 2023, is expected to increase 11.6% year-over-year to $849.38 million. Its EPS for the same quarter is expected to decline 124.5% year-over-year to $1.98. It surpassed the Street EPS estimates in each of the trailing four quarters.

Paramount Global (PARA)

PARA operates as a media and entertainment company worldwide. The company operates through TV Media, Direct-to-Consumer, and Filmed Entertainment segments.

On August 7, 2023, PARA and KKR announced signing an agreement pursuant to which KKR will acquire Simon & Schuster. PARA’s President and CEO Bob Bakish said, “We are pleased to have reached an agreement on a transaction that delivers excellent value to Paramount shareholders while also positioning Simon & Schuster for its next phase of growth with KKR.”

“The proceeds will give Paramount additional financial flexibility and greater ability to create long-term value for shareholders while also delivering our balance sheet,” he added.

PARA’s revenue grew at a CAGR of 5.7% over the past three years. Its levered FCF grew at a CAGR of 2.3% over the past three years. In addition, its Total Assets grew at a CAGR of 2.7% in the same time frame.

For the fiscal second quarter ended June 30, 2023, PARA’s revenue declined 2.1% year-over-year to $7.62 billion. Its adjusted OIBDA declined 37% over the prior-year quarter to $606 million.

The company’s adjusted net earnings from continuing operations attributable to PARA declined 81.4% year-over-year to $80 million. Its adjusted EPS from continuing operations attributable to PARA came in at $0.10, representing a decline of 84.4% year-over-year.

For the quarter ended September 30, 2023, PARA’s revenue is expected to increase 4.2% year-over-year to $7.21 billion. Its EPS for the same quarter is expected to decline 70.9% year-over-year to $0.11.

Roku (ROKU) Stock: A Year-Long Analysis and Insights

Posted on by The INO.com Team

The landscape of television has dynamically evolved in recent years, marked by an accelerated launch of various streaming TV options. A vast selection of subscription-based internet TV services are now at consumers' fingertips, making streaming entertainment a commonplace fixture in American households.

As consumers devote an ever-increasing proportion of their time to streaming media, TV providers rapidly shift their advertising onto these digital platforms.

The leading streaming platform provider, Roku, Inc. (ROKU), witnessed an upsurge in engagement metrics, such as active accounts and streaming hours, over the past few years. This heightened engagement has significantly echoed in the company's financial performance.

The company has seen a remarkable surge in stock prices, which have doubled since the year's onset. This uptick has notably surpassed gains in the S&P 500 and outstripped the year-to-date returns recorded by streaming giant Netflix, Inc. (NFLX).

To fully understand the factors underpinning ROKU's stellar performance in recent months, it's essential to analyze its progress comprehensively. Understanding the factors that catalyzed this growth will provide us with a more informed perspective for predicting potential future directions for ROKU, both as a company and in terms of its stock-price performance.

Recent History

The COVID-19 pandemic significantly boosted the adoption of digital streaming services. As millions of households worldwide had to spend the majority of their time indoors, there was a surge in first-time subscriptions to streaming platforms in 2020.

In July 2021, ROKU’s shares soared to a remarkable peak near $480, predominantly driven by an escalating demand for video-on-demand platforms, a trend amplified by pandemic-enforced home isolation. However, following this zenith, ROKU has experienced a slowdown in momentum, contributing to the company's stock price diving to roughly $39 by the close of 2022.

In 2020, ROKU’s users streamed nearly 59 billion hours of content, marking a 55% surge over 2019. This success solidified ROKU’s position as the custodian of streaming content within the U.S. market.

Unlike other streaming service providers, the company witnessed an upsurge in active subscribers. For instance, in the second quarter ended June 30, 2020, active accounts reached 43 million, and streaming hours totaled 14.6 billion.

Despite this success, the company is battling to hold its place in the fiercely competitive digital streaming arena. Although sales skyrocketed early in the pandemic and the company briefly entered profitability, the ongoing hurdles of intensifying competition, a saturated market, audiences gradually emerging from lockdown, and inflation strains its once robust performance.

Current Status

At the end of the first quarter of 2023, ROKU unveiled its new in-house television line and rolled out significant updates across its operating system, enhancing features and expanding channel partnerships.

The TVs come in 11 diverse models ranging from 24-inch to 75-inch screens, spanning two different lineups and reasonably priced from $150 to $1,200. This strategy is expected to have aided TV sales, boosting top-line growth in the second quarter of 2023.

For the fiscal second quarter that ended June 30, 2023, ROKU’s total net revenue soared 10.8% year-over-year to $847.19 million with platform revenue, which is mostly ad sales, gaining 11.1% from the year-ago quarter and reached $743.84 million. Device earnings, hitherto hampered by supply chain and inflation issues, rebounded with an 8.6% year-over-year gain to $103.35 million.

In addition, there has been an uptick in ROKU’s engagement metrics as active accounts and streaming hours reached 73.5 million and 25.1 billion, indicating 16.5% and 21.3% year-over-year increases, respectively. This was driven primarily by the domestic and international success of the ROKU TV licensing program, coinciding with a predicted 40% drop by the end of 2023 in U.S. households availing cable TV packages from what was a decade earlier.

The popularity of ROKU's proprietary Operating System (OS) further bodes well for the company, claiming the crown as the best-selling TV OS in the U.S. for the quarter, outperforming some major competing systems combined.

It is also worth mentioning that as of June 2023, ROKU boasts an impressive cash and cash equivalents of $1.76 billion, without any debt.

However, there remain areas of concern for the streaming service provider. Average revenue per user (ARPU) declined 7.2% from the prior year quarter. It was steady with the first quarter of 2023, which also declined year-over-year. Advertisers reducing their budgeting amid an inflationary economic environment dealt a harsh blow to the company's operations.

For the second quarter of 2023, ROKU’s loss from operations stood at $125.96 million, a distressing 14% increase from the year-ago quarter. Its net loss stood at $107.60 million, while the net loss per share reached $0.76. However, it was much better than the past three quarters.

In ROKU's second-quarter results, brand advertising remained pressured as total U.S. advertising came in flat year over year. Spending on traditional TV fell 9.4% year-over-year, while traditional TV ad scatter sank 17.2% year-over-year.

Considering the promising top-line projections unveiled by the company, ROKU’s share prices rose 31.4% to $89.61 as of July 28, 2023, the highest daily percentile expansion since November 2017, which has more than doubled this year. This expansion resulted in an approximate $3 billion upswell in the company's market cap.

Recently, ROKU announced a layoff of 10% of its workforce, about 360 people, to cut costs. This action marks the third round of staff reductions within the past year, following its decision to slash 6% of its workforce (roughly 200 employees) in March and another 200 last November.

To trim expenses further, ROKU is planning several organizational changes. It might slow the hiring rate, consolidate office space, reduce its outside services, and conduct “a strategic review of its content portfolio” to save money. Following the announcement of these cost-cutting measures, ROKU's shares spiked almost 10%.

Despite these financial strategies, the stock is trading at a premium to its industry peers. ROKU’s forward EV/Sales multiple of 2.96 is 58.1% higher than the industry average of 1.88. Also, its forward Price/Sales and Price/Book multiples of 3.29 and 4.95 are 188.1% and 161.9% higher than the industry averages of 1.14 and 1.89, respectively.

Within a year, ROKU's overall price performance presented a decelerating trend until the end of 2022, then transitioned to a stable growth phase at the beginning of 2023. This followed a significant mid-year acceleration, followed again by slight deceleration. A comparison of the current share price with that of a year ago indicates long-term growth.

Yet the stock remains significantly below its zenith recorded two years prior, echoing broader pressure on the streaming category in general to establish profitable business models.

Furthermore, changes have been observed concerning institutions' holdings of ROKU shares. Even though approximately 80.8% of ROKU shares are presently held by institutions, of the 599 institutional holders, 264 have decreased their positions in the stock. Moreover, 81 institutions have sold their positions (1,306,808 shares), reflecting declining confidence in the company’s trajectory.

Future Prospects

ROKU has raised its third-quarter net revenue forecast between $835 million and $875 million, putting aside charges related to severance and removing certain content from its streaming platform. This exceeds the earlier third-quarter estimate of approximately $815 million in revenue.

The entertainment giant also anticipates its adjusted EBITDA to conclude between a loss of $40 million to $20 million, which shows improvement from an earlier prediction of a negative $50 million. The Hollywood double strike is anticipated to influence media and entertainment spending adversely for the rest of the year. This scenario poses a relatively severe challenge, given ROKU’s extensive promotions provided for content.

ROKU has noted some recovery hints within specific advertising sectors, including CPG and health and wellness. Yet, the spending on M&E, already facing challenges across the industry, will likely face additional pressure due to limited fall release schedules. Despite these odds, the company remains determined to deliver positive adjusted EBITDA for 2024 with continued improvements.

For the fiscal third quarter ending September 2023, Street expects ROKU’s revenue to increase 11.3% year-over-year to $847.54 million, while its EPS is expected to decline 105.1% to negative $1.81.

Moreover, for the current fiscal year (ending December 2023), the company’s revenue is expected to increase 7.9% year-over-year to $3.37 billion. However, its EPS is expected to come at negative $5.04, indicating a decline of 39.4% year-over-year.

Bottom Line

Streaming service provider ROKU is poised to capitalize on the escalating digital streaming and cord-cutting trend in the upcoming years. This positions the temporary slump it experienced in 2022 as a trifle hiccup rather than an enduring setback.

However, affirming that the company has fully rebounded and is back on its consistent growth path may be premature. Further confirmation of continuous revenue augmentation, ideally substantiated by several successive quarters of enhanced performance, is still needed.

Risk-averse investors would want to keenly observe ROKU for more tangible indications of renewed profitability over the ensuing quarters. There is a potential for the company to continue generating substantial returns, provided it can add persistent value to its platform for users, content producers, and advertisers.

The persistent issue pestering ROKU is its inability to yield regular profits. Furthermore, the company's ad-supported sales infrastructure is stretching back into profitable territory. Yet its recently instituted cost-reduction measures should alleviate some of these financial burdens from 2023 onward.

Seeing ROKU deliver on its projected outcomes would be encouraging. Considering this, all attention will be on the company's performance over the subsequent quarters.

Roku’s (ROKU) Prospects Post-Cathie Wood's $13 Million Move: Buy or Wait?

Posted on by The INO.com Team

TV streaming platform Roku, Inc. (ROKU) has been going through a purple patch. According to Nielsen, while viewing hours on traditional TV in the U.S. declined by 13% year-over-year, ROKU’s users streamed 25.1 billion hours in Q2, representing 3.8 Streaming Hours per Active Account per day, up 21% year-over-year.

Consequently, for the fiscal second quarter that ended June 30, ROKU surpassed Street expectations by increasing its revenue by 10.8% year-over-year to $847.2 million and narrowing its loss by 7.3% year-over-year to $0.76 per share.

This outperformance triggered a rally of nearly 10%, which has resulted in the stock surging by more than 45% and 96% over the past six months and year-to-date, respectively.

Beyond the financial performance, on June 27, ROKU announced that it would become the U.S. streaming home of Formula E, the electric vehicle-powered auto racing series, with live and on-demand replays of races. This has made it the company’s first-ever live sports rights package at a time when streaming companies are rushing to secure sports broadcasting rights amid growing industry competition.

The company launched Roku-branded TVs (the first TVs designed and made by Roku) in March to offer consumers even more choices and enable more innovation across the Roku TV program. Best Buy is the exclusive retailer for TV, and all 11 TV models have received strong industry reviews and customer ratings of 4.5 (out of 5) stars or higher.

More recently, on August 3, Miss Universe signed a multi-year broadcasting deal with the channel, and on August 10, WildBrain landed multiple kids’ series.

Moreover, in July, ROKU announced partnerships with FreeWheel and Shopify Inc. (SHOP) to bring a suite of industry solutions to unlock the full value of streaming TV for advertisers and publishers and the ability to purchase products from SHOP merchants directly from their TV through Roku Action Ads for viewers, respectively.

Given the tailwinds, for the fiscal third quarter, ROKU expects total net revenue of roughly $815 million and a total gross profit of roughly $355 million. Moreover, Statista forecasts the number of U.S. households with cable TV packages to be down 40% from a decade earlier.

Hence, it’s unsurprising to find analysts expecting ROKU’s revenue to increase by 7.6% year-over-year to $3.36 billion in 2023 and by another 15.3% to $3.88 billion in 2024.

However, anticlimactically, Cathie Wood, the founder, CEO, and CIO of Ark Invest, an investment management firm whose flagship fund, ARK Innovation ETF (ARKK), sold shares of ROKU worth $13.1 million.

ARKK, which seeks to generate long-term capital appreciation by investing in businesses across the globe that seek to benefit from disruptive innovation, alone sold 138,221 shares of ROKU. Despite the sale, the AMC still owns 8,697,614 shares of the streaming company, valued at around $770 million, and the holding is weighted at 9.3% of ARKK's portfolio.

Nevertheless, the $13 million move, albeit amounting to a little above 1% of ARK’s stake in ROKU, has raised eyebrows. However, the move makes sense in the context of valuation.

In terms of the forward EV/Sales multiple, ROKU is trading at 3.11, which is 66.4% above the industry average of 1.87. Similarly, the stock’s forward Price/Sales and Price/Book multiples of 3.43 and 4.93 are significantly higher than the respective industry averages of 1.22 and 1.99.

Such a frothy valuation seems unsustainable for a company that’s yet to turn in a profit and is operating in a competitive and overcrowded sector that has of late found the going tough due to an attention recession to the reopening of the economy after the pandemic, softened demand due to a year-long ordeal with inflation, muted TV advertising, and, of all things, strikes among Hollywood actors and writers.

Hence, while the stock is still trading above its 50-day and 200-day moving averages of $71.84 and $60.05, respectively, it is not difficult to see how the tide might have already begun turning. Moreover, with a 5-year beta of 1.76, volatility also remains an issue.

Bottom Line

In view of the above, it could be wise for investors to hold their horses and wait for ROKU to become profitable or for its valuation to become more attractive before acquiring a stake in the streaming giant, aspiring to go full steam ahead.