Media

Why HBO Max App May Be a Must-Have for Roku Stock

With the debut of HBO Max just a week away, it appears that the new premium streaming channel from Warner Media may not be carried by Roku.

HBO Max, which is owned by AT&T (NYSE: T), will carry all of HBO’s programming along with original programs and a huge catalog of movies and TV shows. The archive has about 10,000 streaming hours.

Viewers, except for certain AT&T customers, will pay $15 a month for the service that will compete with Disney (NYSE: DIS), Netflix (NASDAQ: NFLX), Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOGL) and Apple (NASDAQ: AAPL).

“We’re going to be in virtually all app stores, with maybe one exception: It looks like we may not be in the Amazon Fire app store, when all is said and done,” incoming AT&T chief executive John Stankey said at an investors meeting last week.

Roku Claps Back at HBO Max

People at Roku Inc. (NASDAQ: ROKU) apparently took offense. The company issued a statement pointing out that it is the No. 1 streaming platform in the United States with 40 million active accounts.

“While we don’t typically comment on specific deal terms or negotiations, the fact is that in this instance while we believe that HBO Max would benefit greatly from distribution on Roku at launch, we do not currently have an agreement in place,” Roku announced.

Clearly, it benefits HBO Max to be available on as many platforms as possible, especially one with so many active accounts. But if HBO Max becomes highly popular, could it be a problem for Roku if the platform does not carry it? Will users migrate to other platforms to have the premium content available?

On May 7, Roku reported that it lost $54.6 million, or 45 cents per share, in the first quarter of 2020, compared with $9.7 million, or 9 cents per share, a year earlier. The company reported revenue growth of 55% over the same period last year, with $321 million.

Pandemic Brings Opportunities and Challenges

The company said that the COVID-19 pandemic had caused more people to sign up for Roku as they looked for entertainment options while they stay at home. The pandemic also, however, brought a decrease in advertising revenue, with many businesses canceling ads. But executives believe that ad revenue will still grow this year, just at a slower rate.

“In the short term, the pandemic is slowing the growth of Roku’s video advertising business,” founder and chief executive Anthony Wood said in a recent analysts call. “While advertisers are spending less, reduced budgets mean marketers are looking for ways to invest more effectively, and this should accelerate the shift to streaming ad buys.

Advertising is vital to Roku’s health. It provided 72% of its first-quarter revenue. Although Roku’s earnings report was generally viewed as positive by Wall Street analysts, the stock price has dropped about 7% since then.

Roku also gets income from device sales and fees from the streaming services it carries.

On Tuesday Roku stock closed at $116.02, down just over 2% for the day. The 52-week high is $176.55 and the low is 58.22.

Roku’s fortunes are not riding solely on making a deal for HBO Max. The San Jose-based company has dubbed the 2020s “the streaming decade.” Roku executives predict that by 2024 half the TV households in America will have either cut the cord or never subscribed to cable TV. According to one survey completed this spring, we have already passed that threshold, with nearly 82 million households having either cut the cord or never subscribed.

The streaming platform offers many options for viewers, including ad-supported services like the Roku channel, and subscription services like Netflix and Disney+. In the first quarter, viewers racked up a record 13.2 billion hours, an increase of almost 50% over the first quarter of 2019, the company said.

The company intends to raise about $500 million in new capital, according to a filing with the Securities and Exchange Commission.

Roku said it has an equity distribution agreement with Morgan Stanley and Citigroup to sell up to 4 million shares in Class A stock in an “at the market offering.” The company said it would use the money for working capital and general corporate purposes.

Roku has flexibility in determining how many shares it will ultimately sell, so there is no estimate of how much money will be raised.