When rumors swirled that Amazon (AMZN) considered an ad-supported tier for Prime video, Roku (ROKU) soared. Shares popped by 15.5% last week, the biggest gain since February.
Amazon’s business expansion helps streaming media firms, while Roku could suffer from the increased competition. Still, the stock rose because it validates Roku’s business model. Roku thrives on the ad-supported model and is the gateway for streaming channels.
Investors put aside their fears of the mounting competition in the streaming space. This erodes cash flow, which firms need to pay down their billions in debt. Paramount (PARA) bottomed at $13.80 and is up 48% from that low. Warner Bros. Discovery (WBD), which has nearly $50 billion in debt, gained 17.8% last week. AMC Networks (AMCX) added 2.84%.
Disney (DIS) barely budged, however. The theme park giant’s battle against the Florida government is a distraction for management. In addition, the company needs to restore its dividend to attract income investors.
Analysis on Roku
Roku needs advertisers to return to its platform. Customers cut back on ad spending amid an economic slowdown. They have alternative platforms to choose from. This includes Google TV via Chromecast and Amazon Fire Stick.
Competition is only worsening for Roku. This may limit the longevity of the stock’s recent rally.
