Wednesday was not a day to celebrate for investors in 2 particular companies. Both stocks, which are popular and widely held, took big hits. One closed the day almost 13% lower, while the other absorbed a nearly 14% punch.
Let’s take a look at why both took such sharp cuts, and whether those nasty blows were justified…
Roku
Most companies live in fear of a big rival developing a product that can compete effectively with their top seller. Today’s exhibit A: the recently popular tech stock Roku.
The company’s boogeyman is cable and content giant Comcast (NASDAQ:CMCSA), which grandly announced that it would be offering the new Xfinity Flex streaming TV box free of charge to its internet-only subscribers. This closely follows Comcast’s unveiling of its streaming service, Peacock.
Peacock won’t come onstream until next April, but Xfinity Flex — much like Roku’s own TV top boxes and budget-price “sticks” — can connect to third-party streaming services. Comcast’s product also has certain features similar to that of the higher-end Roku boxes, such as voice remote.
At first blush, this seems pretty scary. Comcast is a sprawling entertainment conglomerate with a market capitalization 15 times that of Roku. It could easily eat its scrappy young rival’s lunch, right?
I’m not so sure. Comcast, like other entertainment heavyweights such as Walt Disney, is actually rather late to the streaming party. Roku had been established on the set-top market well before its 2017 IPO, and these days it’s also a native operating system in certain TV sets. Citing data from Strategy Analytics, Roku says it had a very chunky 39% of the streaming media player installed base earlier this year.
That’s a big head start, and it’s a commanding position on the market. Roku has a lot of customers. Being one myself, I’d say the company’s hardware and its operating system are easy to use and effective at what they need to do. Personally, I probably wouldn’t consider switching to a rival system unless its features were so rich and compelling I couldn’t refuse. A voice remote feature isn’t enough to sway me.
I think Roku’s sell-off is a fearful, instinctive reaction to the moves of a 300-pound rival. That threat isn’t as scary as it seems. Meanwhile, Roku is doing well as a company and has plenty of growth in front of it. Investors should consider snapping up some shares while the price is depressed…
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