As Roku has faced headwinds including a slowing media and entertainment advertising market, and its biggest retail distributor, Walmart buying its own connected TV company, Vizio, Roku investors have been buoyed by the prospect of the streaming company itself getting acquired.
But in an investor note advising clients to once again “sell” the up-and-down Roku, equity analyst Michael Nathanson suggests that none of the big-name companies rumored to be potential Roku buyers are actually realistic prospects.
Acknowledging that anything is possible in a world in which Disney ended up funding Fubo to the tune of $345 million in cash and loans, Nathanson one by one took aim at speculative Roku buyers Amazon, Target and The Trade Desk.
One of Roku’s biggest competitors in the CTV market, Amazon already has enough CTV assets to drive significant viewership and ad sales on its own. “Do you really think it’s realistic that Amazon wants to endure the regulatory scrutiny from buying a leading competitor?” Nathanson wrote.
Target, meanwhile, has underperformed for the last five years, the analyst pointed out. And with a market capitalization of only around $63 billion, a $13 billion Roku purchase would result in huge earnings dilution for the retailer. And besides, Nathanson added, if Target really wanted to pursue a CTV acquisition, “wouldn’t it have made more sense to buy Vizio before it was acquired by Walmart?”
As for The Trade Desk, Nathanson takes Jeff Green, CEO of the ad tech company, at his word: TTD launched a competing TVOS platform, Ventura, not to leverage Roku into a sale and get into ownership of streaming inventory, but to “improve streaming ad market dynamics.”
Notably, Nathanson was not among the gaggle of equity analysts who pegged TTD as a possible Roku acquirer when the speculation emerged in early December.
With no obvious M&A rescue on the horizon, that leaves Roku forced to face its market challenges, which Nathanson believes start with Walmart, which recently closed on its $2.3 billion purchase of Vizio. This represents an “important change to the CTV ecosystem,” the analyst explained, with Walmart generating 41% of Roku’s device revenue in 2023. (That figure had dropped to 25% by the third quarter of last year.)
“Walmart will likely prioritize Vizio branded TV sets in stores and leverage Vizio data and engagement to accelerate the continued buildout of Walmart Connect,” Nathanson added.
As for other Roku worries, the analyst said it’s too soon to be concerned about The Trade Desk’s fledgling Ventura product. But as this MoffettNathanson chart reveals, there’s a lot of competition among TVOS platforms driving smart TVs. Note that this graphic doesn’t even include Hisense-developed VIDAA, which said in December that it had 115 million “individuals monthly” using its platform.
Nathanson’s note came after Roku touted 90 million monthly active users in a statement released last week from CES in Las Vegas. That was up from the 85.5 million figure it divulged during its third-quarter earnings call.