Walmart (NYSE:WMT) is an old-time retailer that’s been making remarkable moves to become more relevant in the digital age. Though there’s still a lot to do for the firm to catch up to some of its tech-savvier peers, most notably Amazon (NASDAQ:AMZN), one can’t help but wonder if Walmart ought to be worth more following its $2.3 billion Vizio (NYSE:VZIO) deal. This is a move that puts the retail heavyweight up against Roku (NASDAQ:ROKU) in the realm of smart TVs. But just because Walmart has popped up on the scene doesn’t mean Roku shareholders need to panic.
Indeed, few folks would have thought that it was Walmart and not the numerous Magnificent Seven companies that it’d feel most threatened by. As Walmart looks to tap into the tech savviness of Vizio, an underrated budget television brand that Walmart has proudly sold for years, I think Roku shareholders have the right to ask big questions.
That said, Roku has a plan to better compete with rivals, and it may very well have its way as Walmart looks to learn the ropes in the connected TV scene. For now, I remain bullish on ROKU and WMT as they look to duke it out. It’s Walmart that has a target on Roku’s back, but does that mean it’ll land the shot? Only time will tell, but I wouldn’t look for Roku to act as any sort of sitting duck. If anything, it’s moving fast and may have the edge to stay afloat in this new, more challenging era.
A Major Analyst Downgrades Roku. Could More be on the Horizon?
Following a recent big-name Roku stock downgrade following the Walmart-Vizio deal news, questions linger as to how Roku can win what now seems to be an even steeper uphill battle for the future of smart TVs and streaming at large.
The big downgrade came courtesy of Wells Fargo (NYSE:WFC), which decreased its price target from $77.00 to $51.00 while also lowering the recommendation from Hold to Sell. Indeed, the move was quite drastic, perhaps too drastic. And it may not be the last one from the analyst community as Wall Street looks to go back to the drawing board to weigh just how much the Walmart-Vizio deal could weigh on Roku’s longer-term fundamentals.
“Roku is going to need to reposition given this major shift in the competitive landscape,” said Steven Cahall of Wells Fargo, who expects that the Walmart-Vizio deal will impact Roku’s net adds at some point down the road (around 2025 to 2026).
Personally, I don’t think the severity — $26.00 slashed off the price target — of the Wells Fargo downgrade is anything to get startled about, at least not quite yet. Roku has always had to deal with competition with streaming sticks and smart TV makers. Another major player to go against is nothing to bite your nails over, at least in my opinion.
For now, I give Roku the edge over Vizio’s SmartCast operating system. If anything, the deal will keep Roku on its toes and perhaps push it to take more chances.
Roku’s Building a Moat for Itself, But It Could Take a While
Roku’s installed base is a source of a moat that I think many may underestimate. Further, those who’ve been using the Roku interface may find it quite a hassle to switch over to another television operating system, even one that’s more intuitive. Undoubtedly, finding all the different settings and options can be tricky when learning the ropes with any new operating system. Further, Roku has been doing a great job of bolstering its Roku Channel with a good mix of impressive free content.
With its streaming hat on, it’s the Roku Channel that could stop the floodgates from opening. In recent years, the Roku Channel has gained in popularity. Roku Originals, in particular, could be the biggest area that can help Roku maintain the width of its moat and draw in new users, even as the competition kicks it up a notch.
Of course, exclusive content streaming puts Roku up against a slew of arguably hungrier competitors. Either way, streaming represents a large market that could provide benefits that push some to go for Roku over competing products. Late last year, Roku Originals partnered with the UFC to bring Fight Inc: Inside the UFC content to its platform. It’s intriguing original content that’s bound to get people talking.
Moving forward, I’d look for Roku to tap into sports to gain even more of an edge. While Roku doesn’t need to have exclusive rights to stream live sports, I think its behind-the-scenes content could hit the spot among numerous sports fanatics who are gravitating towards streaming services and away from cable TV.
Is ROKU Stock a Buy, According to Analysts?
Roku stock is a Moderate Buy, according to analysts, with eight Buys, 10 Holds, and three Sells assigned in the past three months. The average ROKU stock price target of $86.47 implies 37.7% upside potential.
The Bottom Line: Don’t Count Roku Out Yet
The Walmart-Vizio deal and recent Wells Fargo downgrade may seem like red flags to some Roku shareholders. Still, I’d argue that it’s far too early in the game to conclude that Roku’s destined to lose market share in the connected TV scene. Now that expectations are somewhat lower, perhaps Roku may have an easier to time jumping over the bar as it looks to get creative with its Originals content.
