Shares of Roku (NASDAQ:ROKU) were slammed on Tuesday, sliding 10.5% by the time the market closed.
While some of this decline was likely due to a continued sell-off in many high-growth software stocks this week, there's another reason for the tech stock's sharp drop on Tuesday: the competitive pricing of the new streaming service from Apple (NASDAQ:AAPL).
On Tuesday morning, during Apple's annual September product launch, the company kicked off with details on its upcoming services: Apple Arcade and Apple TV+. Each service will cost $4.99 a month. Furthermore, these subscriptions will support up to six family members. Specifically, the Apple TV+ streaming-TV service will also be free for one year for any customers who purchase a new iPhone, iPad, Apple TV, iPod touch, or Mac.
Apple TV+ launches Nov. 1, and some investors may believe the aggressively priced offering will create competition for companies in the streaming-TV business, like Roku. Shares of Netflix (NASDAQ:NFLX) also fell after Apple announced the pricing of its new service, likely because of these concerns. But Netflix finished the day down a more modest 2.2%.
Investors should keep in mind that Roku benefits from growing competition in streaming TV; it's not hurt by it. The company primarily makes money from taking a share of subscriptions and ads from third-party streaming services on its platform. Indeed, Roku will get a share of Apple TV+ subscriptions on its platform, as Roku is one of the over-the-top streaming devices the service will be available on.
While Roku does have a streaming service called Roku Channel, the service is essentially an aggregator of ad-supported content and premium subscriptions to services like Apple TV+. Roku does not make original content and thus doesn't sell subscriptions to any services with original content.
More affordable pricing for Apple TV+ will lead to more subscribers -- and ultimately more engagement -- on the Roku platform.
Is the Street misreading how Apple TV+ could impact Roku?