Roku's shares fell 13.7% in Wednesday trading to $129.88 in the wake of news that Comcast will provide an Xfinity Flex streaming box for free to Internet-only customers. Xfinity Flex provides access to a number of popular streaming services, comes with a voice remote and (like many Comcast set-tops for pay-TV subscribers) relies on Comcast's X1 software platform.
(There has also been some speculation that Facebook's (FB) unveiling of its Portal TV video chat device is weighing on Roku's shares. But given that Facebook's Portal devices support a fairly limited set of third-party streaming services, this feels questionable).
Though it's possible that some percentage of Internet-only Comcast subs will decide not to use Roku on account of the Xfinity Flex offer, it's pretty unlikely that the move will do significant damage to the strong active account growth rates Roku has been seeing. There are a few reasons for this:
- Only a fraction of Comcast's residential customer base is Internet-only. Of the 28.5 million "residential customer relationships" Comcast claimed at the end of Q2, just 9.5 million consisted of consumers signed up for only one service -- and that includes those signed up for a Comcast pay-TV service. For comparison, Roku claimed 30.5 million global active accounts as of Q2, up 39% annually.
- Roku still has a content and software edge. While Xfinity Flex does provide access to Netflix, Prime Video, YouTube and several other popular streaming services, its total library is still much smaller than what Roku supports through its Roku Channels ecosystem. Also, Roku arguably provides a more intuitive and user-friendly interface.
- Roku has long been battling against free alternatives. In addition to Amazon.com's (AMZN) Fire TV devices and Apple's (AAPL) Apple TV set-tops, Roku has been competing for years against rival smart TV software platforms -- both proprietary solutions from TV OEMs and third-party solutions such as Alphabet/Google's (GOOGL) Android TV -- that are baked into new sets, as well as pay-TV set-top platforms such as Comcast's X1 and Virgin Media's V6. Working in Roku's favor: The company's hardware is priced inexpensively -- its 4K-capable Premiere stick starts at just $40 -- and its software is now bundled with many smart TVs. Roku estimates that its software was included on more than a third of all U.S. smart TVs sold during the first half of 2019.
- Comcast is only providing one free box per household. Additional boxes will cost $5 per month. As a result, an Internet-only Comcast sub who requests a free Xfinity Flex box might still have a need for one or more third-party streaming devices.
In some ways, the selloff that Roku has seen in response to the Xfinity Flex announcement is similar to the one it saw last week following news that Apple will provide a year of its TV+ service for free to households making an Apple device purchase. Like Comcast's latest move, Apple's TV+ offer probably won't do significant harm to Roku -- particularly given that TV+ will be made available on Roku and several other non-Apple living room streaming platforms.
But as I mentioned earlier this week, Roku's giant 2019 rally (shares are still up over 300% on the year) has left its stock trading at fairly steep forward multiples. And against such a backdrop, many investors holding large paper profits are apparently eager to hit the sell button in response to any headline that's perceived to be negative -- even if there's ultimately more smoke than fire.
Should Roku's stock keep falling in response to such investor jitters and/or due to a broader market selloff, investors could be presented with a fresh buying opportunity. However, with Roku's market cap still around $15 billion, a wait-and-see might make sense for now.
This article has been corrected to state Facebook's Portal devices support a limited set of third-party streaming services.