Streaming video platform Roku will face major challenges as retail giant Walmart moves to buy smart-TV maker Vizio, analysts say. Roku stock fell on Tuesday.
Early Tuesday, Walmart announced plans to acquire Vizio for $11.50 a share in cash, valuing the deal at $2.3 billion. News of the acquisition leaked last week, sending Roku stock lower.
Walmart has been a major sales partner for Roku TVs, soundbars and streaming gear. But Walmart is likely to deemphasize Roku products now in favor of Vizio products, Guggenheim Securities analyst Michael Morris said in a client note Tuesday.
Also, Roku currently provides the operating system for Walmart's Onn house-brand televisions. Walmart is likely to switch to Vizio's SmartCast operating system when the deal is completed, Morris said.
"We believe the combination creates an incremental competitive challenge for Roku," Morris said.
Roku Stock Drops Again
On the stock market today, Roku stock fell 6.6% to close at 67.25. On Friday, Roku stock plummeted 23.8% to close at 72 after its fourth-quarter report.
Roku could respond by working to take market share at other retailers including Best Buy, Costco and Target, Morris said.
Meanwhile, Walmart's acquisition of Vizio will put the retailer on a more even footing with tech giants Amazon and Alphabet's Google, which have both consumer purchase data and connected TV platforms, he said.
"The announced acquisition is consistent with our view that the connected TV (CTV) ecosystem is increasing in value as consumers spend more time streaming programming and the ability to target advertising improves," Morris said.
The Vizio acquisition will give Walmart a new online platform to sell advertising and pitch products to consumers.
"As a retail industry leader with a growing digital commerce offering, Walmart is uniquely positioned to scale the distribution of Vizio television units at retail and incorporate, via consumer opt-in, shopping data to compete in the CTV market at the highest level," Morris said.
Walmart-Vizio Deal Called Win-Win
Vizio has over 18 million active accounts on its SmartCast platform. Roku announced last week that it has 80 million active accounts.
Needham analyst Laura Martin called the Walmart-Vizio deal a win-win for the two companies.
But the deal is bad news for Roku, which had been considered a possible acquisition target for Walmart, Martin said. Still, she rates Roku stock as a buy with a price target of 100.
Walmart expects to close the Vizio transaction by Jan. 31, 2025, pending regulatory approvals.
Roku Disappoints With Q1 Guidance
Late Thursday, Roku delivered better-than-expected fourth-quarter results but predicted a bigger first-quarter loss than views.
Roku expects to lose 90 cents a share in the current quarter, while analysts were looking for a loss of 69 cents a share.
It also is facing lighter spending on media and entertainment (M&E) promotions due to limited releases because of Hollywood strikes last year.
"We expect the M&E markets to continue to be challenged this year," Roku Chief Financial Officer Dan Jedda said on a conference call with analysts.
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