Walt Disney's (DIS) blockbuster acquisition of 21st Century Fox's (FOXA) movie and TV assets this week is bad news for internet television big shot Netflix (NFLX), but good news for streaming video platform Roku (ROKU), a Wall Street analyst said Friday.
X Disney's purchase of the Fox assets likely will hurt Netflix by providing more competition in internet television and less access to high-quality content, Needham analyst Laura Martin said in a note to clients.
The merger will create a "deep-pocket competitor with a talent culture and great data" that has "a more robust capital structure than Netflix," she said. Martin rates Netflix stock as hold.
Meanwhile, the deal will provide new high-profile internet TV services for Roku to offer on its smart-TV and set-top-box platform, Martin said. Roku is poised to get advertising and marketing spending from the new services and will get a cut of subscriber revenue if users sign up through the Roku platform, she said.
Martin rates Roku stock as buy with a price target of 50. Netflix was up 0.4%, near 190.30, in afternoon trading on the stock market today. Roku was up 8.4%, near 50.
IBD'S TAKE: Netflix is on IBD's Leaderboard list of stocks with the potential for big gains. IBD's market team chooses Leaderboard stocks from its proprietary screens and lists. It points out chart bases, buy points, sell signals, and the right time to take profits.
Disney announced Thursday that it plans to buy the entertainment assets of 21st Century Fox in a deal worth $66 billion. The transaction includes the 20th Century Fox movie and TV studios, FX Networks, National Geographic, Fox's regional sports networks, Fox Networks Group International and Star India, as well as Fox's stakes in Hulu, Sky, Tata Sky and Endemol Shine Group.
Disney says the acquisition will help it ramp up its direct-to-consumer streaming services. Disney plans to launch an ESPN sports streaming service in 2018, a Disney-branded family-friendly streaming service in 2019, and use Hulu as a more adult-oriented streaming service. The Fox deal will increase Disney's ownership stake in Hulu to 60% from 30%. Comcast (CMCSA) unit NBCUniversal owns 30% of Hulu and Time Warner (TWX) has a 10% stake in the streaming service.
Before Disney acquires the Fox entertainment assets, 21st Century Fox will separate the Fox Broadcasting network and stations, Fox News Channel, Fox Business Network, FS1, FS2 and Big Ten Network into a newly listed company that will be spun off to its shareholders.
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