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Despite High Stock Price, Roku Is No Netflix

Of all the tech companies that went public last year, Roku may have been the biggest surprise hit. Having made itself almost as synonymous with fast-growing streaming video as Netflix, Roku’s stock soared as high as $50 from an IPO price of $14. Even after a recent sell-off, sparked by slowing sales in the fourth quarter, Roku’s early investors are still sitting on enormous gains.

But anyone who thinks the stock could soar over the long term like Netflix is likely to be disappointed. Roku isn’t fundamentally transforming television. It is just one of a number of companies, including Apple and Google, making streaming devices. That’s a tough business to be in, with low profit margins. And because Roku is cutting prices on its devices, its revenue from streaming players fell 7% in the fourth quarter from a year earlier.

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Roku’s valuation may make sense if you believe the company will get acquired by a firm like Amazon.com