Why Roku Stock Took a Hit Tuesday

The Street seems to think that Apple’s affordable pricing for its new streaming-TV service could pose a threat. But is the Street wrong?

| More on:
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

What happened

Shares of Roku (NASDAQ: ROKU) were slammed on Tuesday, sliding 10.5% by the time the market closed.

While some of this decline was likely due to a continued sell-off in many high-growth software stocks this week, there’s another reason for the tech stock‘s sharp drop on Tuesday: the competitive pricing of the new streaming service from Apple (NASDAQ: AAPL).

So what

On Tuesday morning, during Apple’s annual September product launch, the company kicked off with details on its upcoming services: Apple Arcade and Apple TV+. Each service will cost $4.99 a month. Furthermore, these subscriptions will support up to six family members. Specifically, the Apple TV+ streaming-TV service will also be free for one year for any customers who purchase a new iPhone, iPad, Apple TV, iPod touch, or Mac.

Apple TV+ launches Nov. 1, and some investors may believe the aggressively priced offering will create competition for companies in the streaming-TV business, like Roku. Shares of Netflix (NASDAQ: NFLX) also fell after Apple announced the pricing of its new service, likely because of these concerns. But Netflix finished the day down a more modest 2.2%.

Now what

Investors should keep in mind that Roku benefits from growing competition in streaming TV; it’s not hurt by it. The company primarily makes money from taking a share of subscriptions and ads from third-party streaming services on its platform. Indeed, Roku will get a share of Apple TV+ subscriptions on its platform, as Roku is one of the over-the-top streaming devices the service will be available on.

While Roku does have a streaming service called the Roku Channel, the service is essentially an aggregator of ad-supported content and premium subscriptions to services like Apple TV+. Roku does not make original content and thus doesn’t sell subscriptions to any services with original content.

More affordable pricing for Apple TV+ will lead to more subscribers — and ultimately more engagement — on the Roku platform.

Is the Street misreading how Apple TV+ could impact Roku?

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Netflix, and Roku. The Motley Fool has the following options: short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.

More on Tech Stocks

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

This 1 Tech Stock Has Surged 50% in the Last 2 Months: Should You Buy?

While the entire tech sector is in a selloff, one Canadian tech stock has jumped 50% in two months. Is…

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Tech Stocks

3 Growth Stocks Worth Buying if You Can Handle Volatility

Are you an investor that isn’t scared of a little volatility? Here are three top picks!

Read more »

edit U-turn
Tech Stocks

Can Shopify (TSX:SHOP) and Lightspeed (TSX:LSPD) Recover Before 2023?

Shares of these omnichannel commerce-enabling companies are down over 80%, creating a solid buying opportunity.

Read more »

Tech Stocks

These 3 Cheap Stocks Would Be an Excellent Addition to Your Portfolio

Given their attractive valuation and solid growth potential, these three stocks would be an excellent addition to your portfolio.

Read more »

Growing plant shoots on coins
Tech Stocks

Market Correction: Don’t Miss These TSX Growth Stocks

Long-term investors shouldn’t miss this correction to accumulate top TSX growth stocks at prices well below their highs.

Read more »

Shopping and e-commerce
Tech Stocks

Shopify (TSX:SHOP): Why Did it Fall So Violently in 2022?

The TSX’s tech phenomenon fell sharply in 2022 due to slowing revenue growth, soaring inflation, and rising interest rates.

Read more »

Business success with growing, rising charts and businessman in background
Tech Stocks

3 Growth Stocks Worth Buying Today

With the volatility of the stock market, many investors continue to avoid growth stocks. However, here are three stocks worth…

Read more »

Online shopping
Tech Stocks

Down 80% From Record Highs, Is Shopify Stock Undervalued Right Now?

Shopify is among the worst-performing stocks on the TSX in 2022. The selloff surrounding growth stocks has dragged Shopify lower…

Read more »