Online Streaming of Consciousness
Online streaming: America’s favorite pandemic pastime. In terms of popularity, streaming ranks just ahead of playing video games and shopping for useless junk online out of boredom.
You wouldn’t know it by its stock price, but Roku Inc. (Nasdaq: ROKU) is probably the biggest player in online streaming right now.
Over 40% of American homes stream video on demand via a Roku device. It’s simple, inexpensive and offers a completely open platform to stream anything — i.e., Roku doesn’t have a walled garden for apps like Apple Inc. (Nasdaq: AAPL).
Roku was also one of the first stocks that Great Stuff Picks ever recommended. If you got in back in May 2019, you’re up more than 77% right now. Congratulations!
We’re talking about Roku today because ratings firm MoffettNathanson just issued a whopping 62-page report on the company, which distills down to one word: neutral.
Yes, Nathanson spent 62 pages maintaining Roku’s neutral rating.
The firm states that, while Roku “built a strong gatekeeper position among streaming media devices,” there’s a significant risk that big-name tech players like Alphabet Inc. (Nasdaq: GOOG) could step in and take over.
Let’s address both of these points, shall we?
First, the “strong gatekeeper position” is very real.
Roku plays hardball with both Peacock from Comcast Corp. (Nasdaq: CMCSA) and HBO Max from AT&T Inc. (NYSE: T). Both old-school cable companies thought they could run online streaming like they did cable TV.
It ain’t happening. Roku’s diehard customers fled online to avoid cable companies’ abusive and costly packages. There’s no way Roku would let those same dinosaurs run the show on its own platform. Kudos to Roku.
Big Tech could very easily come in and do what Roku does. But it won’t. Roku’s success lies in its insanely friendly menus — and anyone can stream on its playground. Amazon.com Inc. (Nasdaq: AMZN) can give away all the Fire TV Sticks it wants, but nobody really wants its awful interface.
And Alphabet’s Google as a serious contender? Sure, spin another plate up there. The company has killed more than 200 apps, services and hardware devices in its lifetime. It literally can’t focus seriously on anything other than its core ad revenue business.
Just ask Google Play Music subscribers, Google Cloud Print users or anyone who bought a Google Nexus smartphone.
Ultimately, MoffettNathanson is right: The moat around Roku’s online streaming kingdom isn’t all that wide. But no Big Tech company can come in cheaper with an equivalent, easy to use interface and have a more open platform than Roku.
Besides, it’s more profitable for Big Tech to offer apps that ride on Roku and help drive content creators than it is to duplicate the Roku format.
The bottom line: Roku controls its own destiny here. Which brings us to Nathanson’s biggest point: “How well will it monetize this large and growing user base?”
That’s the real crux of Nathanson’s 62-page Roku report. How the company balances its revenue growth with its neutral streaming platform will dictate Roku’s future success. So far, Roku has been right on the money — and so have Great Stuff investors.
Editor’s Note: Earnings expertise? We’ve got it. All you need to know about earnings season is right here!
Going: Share a Coke With Corona
Proving the “lowered expectations” trend this earnings season, Coca-Cola Co. (NYSE: KO) rallied on a rather unimpressive quarterly report.
The beverage baron said that earnings fell 33.3% to $0.42 per share, just ahead of Wall Street’s expectations. Revenue plunged 28% to $7.2 billion, missing the consensus estimate for $7.57 billion.
Coke’s big detractor was its away-from-home segment — sales from restaurants and sports venues. Pretty much a no-brainer if you ask me. At-home sales rose, but not enough to make up the difference.
Coke also didn’t provide an outlook due to COVID-19 uncertainty.
So, with falling revenue, dropping earnings and no outlook … naturally, KO is in rally mode today. It was apparently enough to beat slashed quarterly expectations. So, was it better than expected? Or maybe less bad than expected? Better than, worse than expected?
You tell me: Email your thoughts on beating slashed earnings expectations to GreatStuffToday@BanyanHill.com.
Going: Hypersonic
Hypersonic motivating earnings are creating, and everybody knows that Lockheed Martin Corp. (NYSE: LMT) is devastating. (Any J.J. Fad fans out there?)
Yesterday, we said that Lockheed Martin’s earnings report was one to watch this week, and the company didn’t disappoint. Earnings rose 15% to $5.79 per share; revenue rose 6% to $16.22 billion. And both figures beat Wall Street’s expectations.
In fact, from aeronautics to missiles to helicopters, Lockheed saw increased sales across the board. Apparently, weapons are needed during a pandemic, what can I say?
Furthermore, Lockheed boosted its 2020 earnings and revenue outlooks, targeting above the consensus. The company’s biggest potential gains are poised to come from hypersonic weapons, which Credit Suisse called “a substantial new development” and a “multibillion dollar opportunity.”
We don’t talk much about the aerospace and defense sector here, but looking at Lockheed Martin’s potential, I think it’s time Great Stuff took a closer look.
Gone: Tanking Tesla?
I’ve worried for some time that Tesla Inc. (Nasdaq: TSLA) is highly overvalued. Don’t get me wrong: I’m bullish on Tesla. It’s the car company of the future with its first-mover status in the electric vehicle market.
But TSLA is currently priced to perfection, as analysts like to say, and it still moves higher.
I’m not alone in my concerns. JMP Securities Analyst Joseph Osha (Sup, fellow Joe?) downgraded TSLA this morning from market outperform to market perform — basically from buy to hold. Osha said this on Tesla:
While Joe’s concerns are real, I’ve long since come to realize that TSLA doesn’t trade on fundamentals. It hasn’t for quite some time. TSLA trades on demand.
Tesla is what I typically call a “cult stock.” People want to buy TSLA, so they buy TSLA. And no amount of fundamental reasoning will dissuade them.
That said, quite a bit of TSLA’s recent run was fueled by the assumption that the stock would be to the S&P 500. To join that illustrious group, however, Tesla needs to report a profit after tomorrow’s close — making it four profitable quarters in a row. EarningsWhisper.com sets the whisper number at a loss of $0.23 per share, while the consensus expects a loss of $0.71 per share.
Judging from expectations, the earnings front doesn’t look too good. If Tesla ekes out a second-quarter profit, look out! TSLA will rally big, with $2,000 shares inside the realm of possibilities.
But if it fails to post a profit, a sell-the-news event is coming.
How’s that for volatility?
You’ve been warned. Plan accordingly.
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Today’s Quote of the Week rejoins a conversation sparked by our ol’ pal Mr. Portnoy.
Mike Portnoy? Acclaimed drummer and songwriter?
I wish. No, this is that Dave Portnoy guy. You know, the trader and Barstool Sports founder who went all full “rabid dog” last month, raving about Warren Buffett’s idiocy for missing out on the nigh-idiotic airline rally.
Yes, that sigh-provoking binge, brought ever loftier with that sweet Fed cash lifeline while flight bookings fell through the floor. I mean, have you been jet-setting around lately?
Actually, don’t answer that. Let’s just get into today’s quote, courtesy of finance blogger Shane Parrish, backing up Buffett:
Now, the easiest way to get your name out there in the analyst world is to go after the W.B. The second easiest way is to counter that same Buffett criticism. Defend the Oracle! Defend the Oracle!
I, too, have ranted about how not everyone out there can invest like Buffett — nor should we. (Unless, of course, you’ve got the zeros and greenbacks to compound your billions … then keep abiding, dude.)
But, on the surface, I agree with Parrish — at least in terms of supposed idiocy. Investors mitigating their risk will look like idiots to ultra high-risk investors. It’s like how everyone driving faster than you is a lunatic, and anyone slower should’ve just stayed home.
Bonus quote!
With similar perspective, Parrish also said:
The takeaway here: Don’t invest such that you back yourself up in a corner, hoping for only one or two possible scenarios where you succeed.
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Great Stuff: A Certain Degree of Certainty
One thing we’re 100% certain about? We love hearing from you!
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Until next time, stay Great!
Joseph Hargett
Editor, Great Stuff
