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What Walmart buying Vizio means for Roku

Published 02/22/2024, 08:44 AM
Updated 02/22/2024, 08:44 AM
© Reuters

Investing.com -- On Tuesday, Walmart (NYSE:WMT) announced it has entered into an agreement to acquire VIZIO for $11.50 per share in cash, representing an equity value of approximately $2.3 billion.

The news suggests that Walmart aims to grow its media and advertising presence. But what does it mean for other companies in the industry, such as Roku?

Roku stock price

News of Walmart's acquisition of Vizio resulted in Roku shares (NASDAQ:ROKU) sinking. The stock fell 6.6%, adding to its recent decline following its fourth-quarter earnings report. When rumors of the deal first emerged on February 13, Roku’s shares also took a hit, falling more than 8%.

The slide in reaction to the initial reports and subsequent announcement of the deal comes as investors and analysts see the company facing potentially major challenges. For the year-to-date, Roku’s stock has declined 26.8%.

What do Roku and Vizio do?

If you are not already aware, Roku's streaming devices let users watch entertainment, such as TV shows, movies, YouTube videos, and more from the internet on your TV.

Roku devices connect to users' Wi-Fi networks and provide instant access to streaming services, including Netflix (NASDAQ:NFLX), Hulu, and Disney+.

Similarly, Vizio is a consumer electronics company primarily focused on manufacturing and selling various audiovisual products. Vizio is well-known for its products in smart TVs, soundbars, home theater systems, tablets and other accessories.

Roku stock forecast

Despite the share price decline, analysts at Needham & Company remain bullish on Roku stock, maintaining a Buy rating and $100 price target on the shares in a note reacting to the Walmart acquisition of Vizio.

The firm's analysts stated that they believe the negative reaction in Roku shares following the deal announcement is "overdone," and they are buyers based on several potential upside value drivers they see.

Guggenheim analysts have a Neutral rating on Roku, with the firm keeping a $72 per share price target on the stock in a recent client note.

Is Roku a good stock to buy

According to Needham & Company, yes. The firm listed several reasons for their buy thesis, including ad revenue. They told investors that they believe Walmart's "full funnel" ad product will target a different market segment than Roku's CTV ad product. "Also, because Walmart's ad strategy is to chase Amazon (NASDAQ:AMZN) with closed-loop attribution (lower funnel), Roku benefits by losing VZIO as a direct competitor in its CTV-only (upper funnel) target market," they explained.

Needham also believes that once the Walmart deal for Vizio closes, it will lower Roku's competition for shelf space at retailers other than Walmart. Furthermore, the deal could result in takeover interest for Roku if Walmart proves out VZIO's value proposition and closed-loop attribution.

The deal will also result in the value of Roku's CTV data rising and the company being more nimble than Vizio, according to Needham & Company.

Analysts at Needham went on to state that from a valuation point of view, they believe Roku should be valued as a digital video aggregation platform such as YouTube or AAPL's iOS platform.

On the other hand, Guggenheim analysts told investors in a recent note that they “believe the combination creates an incremental competitive challenge for Roku.”

“Walmart is a primary sales partner of Roku-powered TV units, which may be de-emphasized at point of sale,” commented Guggenheim. “In addition, Roku is currently the operating system for Walmart house brand onn, which we assume would no longer be the case following this combination.”

The firm also explained that depending on how Walmart distributes Vizio units going forward, Roku may have an opportunity to take share at other retail partners, including Target (NYSE:TGT), Best Buy (NYSE:BBY) and Costco (NASDAQ:COST). However, they feel the availability of a potential partner with the scale and technology base of Amazon, Google (NASDAQ:GOOGL), or Walmart “is not obvious."

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