From Tesla to Roku, Why Cathie, Why?

Roku over Tesla 

Cathie Wood de throne Elon Musk’s Tesla for Roku (ROKU:US) as ARK’s top holding last Thursday. Tesla had been off the grid of Cathie Wood’s main fund for the first time in about four-and-a-half years. According to ARK Investment Management LLC.’s data compiled by Bloomberg,  ARK held Roku shares worth USD$ 717 million over a position of Tesla worth USD$ 703 million. 

 Tesla was kicked out of the sustainability index.

Despite being an electric car manufacturer, Tesla (TSLA:US) is no longer deemed a socially responsible company. On May 18th, it was announced that Tesla was kicked out of the widely followed S&P 500 ESG Index (SPX:IND), which focuses on companies that prioritize the environment, social and governance (ESG) issues. The news comes after ‘rampant racial discrimination’ issues and fatal car crashes linked to Tesla’s autopilot technology.

The company’s Fremont factory is accused of being a ‘racially segregated workplace where black people are subjected to racial slurs and discrimination in work assignments, discipline, pay, and promotion’. Furthermore, January saw the first person charged with a felony for a fatal crash involving an automated driving system. Since then, there have been more reported fatalities involving Tesla, with the recent crash reported in early May, involving a 2022 model Tesla Model S that claimed 3 lives.

“While Tesla may be playing its part in eliminating fuel-powered cars, it has fallen behind its peers when examined through a broader ESG lens,” wrote Margaret Don, the executive in charge of ESG ratings in North America. 

Musk tweets in fury

Tesla’s boss Elon Musk responded by calling the ESG index ‘a scam’. 

Musk tweeted that “Exxon is rated top ten best in the world for the environment, social & governance (ESG) by S&P 500, while Tesla didn’t make the list! ESG is a scam. It has been weaponized by phoney social justice warriors.”He then proceeds to tweet several ‘memes’ related to his company’s removal from the ESG index with one such questioning the presence of oil companies in the list.

Following the latest blow, Tesla’s stock took a huge hit. It sank more than 10% during trading Friday, falling at one point to about $636 per share. Even long-time Tesla optimists are having doubts. On Thursday, Daniel Ives (analyst at Wedbush Securities) lowered its target price for Tesla to $1,000 from $1,400.

The continuing downward spiral could have more impact on Musk’s wealth. Musk has taken out extensive personal loans that are heavily tied to the value of Tesla’s stock. As the company’s share price approaches $600, lenders could seek some of his equity to ease their confidence in his ability to pay.

Musk has not helped the stock price by turning his bid to buy Twitter (TWTR:US) into a financial soap opera. The stock came down 35% since the Twitter deal but Musk tweeted last week that the deal was “on hold” while he investigates the number of automated bots on the site. Musk was worth about $212 billion Friday, down from about $259 billion when he first announced his intention to take over Twitter.

 

Now that Tesla is faltering, the broader market, however, is too. 

On Wall Street, futures tracking the S&P 500, Nasdaq 100, and Dow Jones weakened by 2.97%, 4.49% and 2.81% respectively. For the S&P 500, this meant a 7th consecutive weekly losing streak. That was the worst consistent performance since 2001. The S&P 500 dipped into a bear market Friday, as investors continue to grow concerned about inflation and global economic factors. 

Eight companies are to blame for nearly half the stock market’s decline. Tesla, together with Apple (APPL:US), Microsoft (MSFT:US), Amazon (AMZN:US), Google (GOOG:US), Meta (FB:US), Nvidia (NVDA:US), and Netflix (NFLX:US), are responsible for 46% of the benchmark’s 2022 losses through Wednesday on a total-return basis.

Tesla shares have dropped 41% since April 4, a much steeper fall than the broad market, vaporizing more than $400 billion in stock market value.

 

What is Roku Inc?

Roku Inc is a San Jose, California-based video streaming provider. Founded by Anthony Wood in 2008 implies the mission is to be the streaming platform that connects and benefits the entire TV ecosystem around the world. Roku is currently traded at $94.20USD as of 23/05/2022 and has a 12.809B market capitalization. 

 

Why Roku Inc as an alternative?

In a long run, Roku’s idea that the market for free ad-supported streaming TV could be larger than paid subscription models. Roku provides its own ad-supported channels featuring licensed third-party content as well as offering users access to streaming services like Netflix, Disney+, Amazon Prime and Apple TV. 

According to Statista,  Roku reported a total of around 61.3 million monthly active users in the United States as of Q1 2021.  This figure is the company’s highest monthly active user total of all time, as the userbase almost doubled in just two years.

Roku recently reported that its devices had been used to stream 20.9 billion hours of video content in the first quarter of 2022 alone. The company earned about 511 million U.S. dollars in total sales in 2020 and nearly 500 million dollars in advertising revenue that year.

 

So why Roku is a great choice?

A growing interest in the content acquisition. Roku had further announced its acquisition right of the production studio behind the popular show This Old House that have a total of more than 1,500 episodes under its belt. In addition, Roku had acquired Quibi. This will provide Roku with a growing library of content. Additionally, since it won’t have to share ad revenue for shows it owns, it will increase the ad revenue generated on its platform.

Next,  is ad targetting. Roku acquisition of  Nielsen’s Advanced Video Advertising unit. The acquisition means that Roku will also acquire Nielsen’s automatic content recognition (ACR) and dynamic ad insertion (DAI) technology. Roku will also replace traditional TV commercials with targeted ads, with the partnership of more than 100 million smart TVs and other streaming devices, it gives greater insight and more accurate targetted ads. Implementing ads targeting, makes Roku more appealing to advertisers. 

 

With no doubt, streaming services like Roku and Netflix are one of the biggest beneficial from the pandemic. By analyzing Roku recent collaboration, acquisition and developments with more under their sleeves, there are plenty of reasons for long-term investors to believe that Roku journey has more to come. 

 

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