Look For Roku To Benefit From The Streaming Wars

Microsoft licenses its operating systems to manufacturers of computers back in the day. Today, the name Microsoft is synonymous with PCs and laptops. Just like Microsoft is synonymous with PCs and laptops, Roku is synonymous with smart TVs.

Roku was founded in 2002 is taking advantage of the cord cutting trend. According to Roku’s most recent shareholders’ letter, “roughly 50% of U.S. cord cutters are Roku customers.

Roku offers an easy way to access all the top streaming services. Roku estimates that more than a third of all smart TVs sold in the U.S. have Roku’s operating system built in. The list right now includes TCL, Insignia, Sharp, Hisense, Hitachi, RCA and Philips. Roku’s free channel has also secured a partnership with Samsung.

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Roku is well-positioned for the streaming war. As the streaming war rages between Netflix NFLX, Amazon AMZN, Disney DIS and others and more people spend more time streaming their favorite shows on more services, Roku makes more money. So no matter which streaming service comes out on top, Roku should benefit.

It’s the reason why Roku was up as much as 400% this year at one point. In just under a year, Roku went from a small/mid cap stock to a large-cap. The firm’s sales growth has been accelerating with year-over-year growth of more than 50% for the past 3 quarters. In addition, Roku just reported its 8th straight top and bottom-line earnings beat. However, on the news the stock sold off. Wall Street will tell you their valuation got to rich, but a month ago I talked about where the chart suggested the Sellers were.

Is Roku’s Reign Over???

Although I thought the weekly demand would have been a better buy, price reacted to the monthly demand at $95. Thus, the chart suggests price will rise to the daily supply at $148.

It’s not a coincident, price sold off at the daily supply at $148, the news just served as a catalysts. Just another example of why the Markets are not random.

So where does Roku go from here?

Highlighting how well the company is monetizing its platform, Roku’s average revenue per user over the trailing 12 months is 40% higher than Netflix’s most expensive streaming plan. What’s particularly surprising, however, is that current trends indicate there’s still plenty of upside left for this metric to move even higher.

In Roku’s third-quarter update, management said its ARPU was $22.58. With 32.3 million active accounts (1.7 million of which were added in Q3 alone), this robust ARPU has helped Roku deliver $633 million in trailing-12-month platform revenue.

While Roku does benefit from subscriptions to third-party streaming services on its platform, advertising is the company’s most important growth driver. In fact, monetized ad inventory on its platform more than doubled year over year in Q3 — a trend that has been consistent with recent quarters.

Looking ahead, Roku believes this is just the beginning when it comes to advertising spending on its platform. Only 3% of TV advertising budgets are currently spent on connected TV, yet connected TV accounts for 29% of U.S. viewing, Roku’s general manager of platform business, Scott Rosenberg, noted in Roku’s third-quarter earnings call, citing research firm Magna Global.

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Thus, the chart suggests to go long at the daily demand at $107 and ride price back to the daily supply at $148.

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.

Will Google Buy Fossil Next???

Fossil Group, Inc. designs, develops, markets, and distributes consumer fashion accessories in the United States, Europe, Asia, and internationally. Its principal products include men’s and women’s fashion watches and jewelry, smartwatches, handbags, small leather goods, belts, and sunglasses.

Although Fossil sales other things beside watches, their bread and butter and what they are known for are their watches.  However, watches are a tough business these days in the era of smartwatches.

Thus, Fossil has been expanding its smartwatches and wearable portfolio.  This holiday season, Fossil is selling their most advanced hybrid smartwatch, featuring text messages, alerts, caller ID, heart rate and activity tracking and a two-week battery life, but the smartwatch market continues to be dominated by Apple.

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Fossil reported earnings this past week.  The stock tanked after a surprise quarterly loss and said its sales fell 11%. Fossil said it lost $26 million, or 51 cents a share, in the third quarter, versus earnings of $5 million, or 10 cents a share, in the third quarter of 2018. Sales also declined to $539.5 million from $609 million.

Among the challenges that Chief Executive Kosta Kartsotis outlined on the earnings call, according to a FactSet transcript: a tough consumer environment, difficult sales trends at wholesale channels in developed markets, and lack of interest in traditional watches. “Based on these factors, we’ve lowered our sales expectations for Q4,” he said. “[G]iven the trends we saw in the third quarter, we think it’s prudent to plan our sales number assuming these trends don’t change near term.

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Earlier this year, Fossil announced that they were sell technology related to its high-end watches to Google. Google paid $40 million to Fossil in exchange for intellectual property needed to make the watches.

Fitbit was the pioneer in fitness trackers and was doing well, that until the smartwatches were also able to track fitness activities.  And at the point this was the beginning of the end for Fitbit. And after years of struggling and trying to remain relevant, they finally waved the white flag and sold to Google. Google was seen as a potential suitor for Fitbit prior to the deal announcement, as the two companies struck a partnership last year and have vested interests in the health space.

So why would Google buy Fossil.  Googles mission for its Wear OS is to create “a diverse set of devices” for their smartwatch platform.  Fossil owns and licenses 14 brands, including popular names like Kate Spade, Michael Kors, Armani, DKNY, and Diesel. Each of these brands already have their own Wear OS watch in its own signature style.  Thus, buying Fossil would be in alignment with Googles mission for Wear OS.

If Google is going to buy Fossil, the chart suggest, to wait for price to hit the monthly demand at $5, which would represent a 44% discount from the current price.

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.