Streaming giant Roku released its fourth quarter earnings report on Feb. 17, and while the numbers were generally positive, the stock still suffered a 35% plunge.
The dip is partly related to Roku missing analyst revenue projections, which were $894 million (pdf), much more than the $865 million the company reported for the three months ending on Dec. 31, 2021. The platform’s growth trajectory has also slowed compared to its pandemic high
“For 2022, we expect ongoing supply chain disruptions will continue to impact the global economy,” Roku CEO Anthony Wood told investors. “This will affect the broader consumer electronics space, and the TV industry in particular. Overall TV unit sales are likely to remain below pre-COVID levels, which could affect our active account growth.”
That supply chain issue has impacted Roku’s business with the smart TV makers it provides its streaming software to, the production of Roku TV streaming set-top boxes users can connect to any television, and the company’s revenue derived from the advertising displayed on Roku TV devices.
Roku is fighting obsolescence as streaming alternatives mature and also offer content
However, beyond Roku’s stated explanations for its earnings miss, there’s a larger issue looming ahead that may also be impacting the company’s stock price and future prospects: competition. When Roku launched in 2008, the primary big tech player dabbling in the space was Apple with its Apple TV set-top box. Since then, other tech giants have joined the fray, including Google with Chromecast in 2013, and Amazon with Fire TV in 2014.
Since then, Apple and Amazon have bolstered their offerings with original content and aggressive partnership deals with existing Hollywood studios. And while these streaming interests are important components for both companies, they don’t account for the majority of their revenue.
Instead, Apple, Google, and Amazon have proprietary hardware (smartphones, PCs, tablets, and set-top boxes and dongles) and free and subscription software service and platform revenue engines that provide each with income to devote to capturing the streaming market through various means. Most notably, Apple and Amazon are plowing billions into original programming, not only to compete with the likes of Netflix but to draw more users to their respective set-top boxes and software-based streaming platforms.
In 2021, Roku’s total revenue was $2.7 billion, up 55% since 2020, but still a fraction of the amount its competitors spent just on original content. Roku has also begun to invest in its own slate of original programming, but the production budgets are much smaller than those of its streaming rivals with much deeper pockets.
In the face of such aggressive spending and increasing market saturation, Roku’s streaming-only business may find it difficult to maintain its foothold among the larger players.