Apr 01, 2020 (IAM Newswire via COMTEX) -- While the coronavirus madness continues, factories close, and people are staying at home, investors are struggling to find a way to save their money. So far, it is obvious that some industries are resisting this crisis as the demand for their products are soaring. You do not have to be any kind of an expert to find out that this situation will lead to a tremendous increase in time spent in front of the TV, which means more viewing hours but potentially also more consumers. Having this in mind makes it obvious why streaming industry companies are considered as "defensive investment" right now. But this doesn't mean that the industry is without its weaknesses.
One of the companies which are interesting to keep track of the following days is Roku /zigman2/quotes/205087179/composite ROKU -5.40% who will try to take advantage of the situation. But there are still difficulties that will limit Roku's ability to use these conditions straight away.
Weakness – ad-based business model
It's no secret that companies start spending less money on advertising costs during hard times and this is no exception. Unlike Netflix /zigman2/quotes/202353025/composite NFLX -1.59% which has been resisting ads for quite some time now and quite persistently as it has no intention of making them as its source of income, Roku is in a far more unfavourable position during this unprecedented health crisis that has put the economy on a virtual standstill. Twitter /zigman2/quotes/203180645/composite TWTR +0.87% announced it is expecting a drop in revenue and an operating loss despite increased usage. Roku won't be exempt to this decreased advertising spend as its advertising customers are facing great difficulties.
Threats – volatility
Investors panicked because Roku is going against the big guys such as Apple /zigman2/quotes/202934861/composite AAPL +0.64% , Disney /zigman2/quotes/203410047/composite DIS +0.16% , Netflix, Amazon's /zigman2/quotes/210331248/composite AMZN -0.40% , Google /zigman2/quotes/205453964/composite GOOG +0.54% and all other streaming players. So whenever a news regarding the competitor arises, Roku's investors panic and this is reflected in its stock volatility. Roku's business model is often misunderstood as its stock was dropping with competition fears whereas Roku only benefited from increased competition and their enhanced offerings.
Since the beginning of the crisis, Roku shares firstly fell, then partly recovered, but still, they are far from the value they had before all of this began. Despite the panic, the move of Fox Corporation /zigman2/quotes/209921865/composite FOX +0.51% to sell its 5% stake and to buy a smaller streaming platform named Tubi was also one trigger of the drop before the reason of the sale was known.
Strength- Business Model
Roku doesn't favor any streaming service over others and this helps it to avoid a virtuous cycle when competitors keep offering new options as by choosing Roku, they gain access to a broader selection of content. This network effect in action is one of the strongest competitive advantages of Roku's business model.
Opportunity - Commission
The increase in demand is tremendous which could have a double positive effect on Roku's performance. Roku users will order more movies and they will likely try out some new paid channels. This will result in increased commission revenues because Roku gets a 20% commission from the content ordered on its website and this could help in offsetting the loss from advertising.
This article is not a press release and is contributed by Ivana Popovic who is a verified independent journalist for IAMNewswire. It should not be construed as investment advice at any time please read the full disclosure . Ivana Popovic does not hold any position in the mentioned companies. Press Releases – If you are looking for full Press release distribution contact: email@example.com Contributors – IAM Newswire accepts pitches. If you're interested in becoming an IAM journalist contact: firstname.lastname@example.org Questions about this release can be send to email@example.com