Tech Today: Questions for Facebook, Liking Roku, Netflix Takes Over

Here are some things going on today in your world of tech:

Roku's "Channel" Strategy


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Shares of streaming television pioneer Roku (ROKU) are up $2.88, or 7%, at $46.17, after Oppenheimer's Jason Helfstein this morning raised his rating on the shares to Outperform from Perform, with a $50 price target, writing that the company's " The Roku Channel," a collection of free content that Roku aggregates, means the company is expanding beyond its own hardware appliances to "other platforms," such as Samsung Electronics's (005930KS) "smart" television sets.

"We had previously assumed Roku could achieve 20%-25% terminal market share, implying a terminal revenue projection of $19B, based on the $85 billion currently spent on linear TV & OTT advertising," writes Helfstein.

"Roku Channel gives Roku the ability to monetize the remaining 75-80% of OTT time-spent or $66 billion."

Netflix Takes Over the Living Room

Speaking of the TV, Netflix (NFLX) shares are up $5.21, or 1.3%, at $392.97, after John Blackledge with Cowen this morning observed that his monthly survey of 2,500 U.S. consumers, when asked "which platform do you use most often to view content on TV," led to 27% of respondents replying with Netflix, topping "basic cable" at 20.4%, broadcast TV, at 18.1%, and YouTube at 11.4%.


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Blackledge reiterated an Outperform rating on the shares, and raised his price target to $430 from $375, writing that the company's likely spending this year of $13 billion for original content " ensures the top spot in the living room over time."

Blackledge also expects Netflix to show "strong" results for Q2, with its "original hours" rising by 51%, year over year, "a positive tailwind," he thinks.

Grudging Respect for Twitter

Twitter (TWTR) is doing better, but it still has challenges, including "monetization," writes Wells Fargo's Peter Stabler this morning, reiterating a Market Perform rating, but raising his price target to $42 from $32, after concluding there is "clear progress" in the company's "turnaround."

"Twitter is succeeding in re-engaging agencies and marketers," he observes.

"Monetization per user has turned the corner," and in the matter of video, "we see a sustained opportunity for improving monetization efficiency and expect content partnership efforts will continue to strike a balance between niche offerings and high-profile content bundles."

Stabler, a professed "hopelessly addicted Twitter user," still has concerns, however. "Daily engagement remains substantially lower than both FB and Instagram-a phenomenon, we believe, that has its roots in product complexity and content discoverability."

In terms of monetization, Stabler's waiting to see "if recent progress in the U.S.-which turned the corner to growth in 1Q-can build to a higher growth rate."

"On the international front, we believe investors should focus on the breadth of growth-admittedly difficult with the limited regional disclosure made available by management."

Meantime, as for valuation, he notes that the shares "have added ~6 turns of NTM EV/EBITDA multiple expansion since TWTR reported 1Q earnings on 4/25."

Twitter shares are down 62 cents, or 1.4%, at $44.36.

Questioning Dell Deal's Discount

Analysts continue to ponder yesterday's deal announced by privately held Dell Technologies to take itself public via a stock swap of its shares with the publicly listed " DVMT " stock that represents its interest in VMware (VMW).


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DVMT is up $2.77, or 3%, at $94.97, still well below the $109 price at which Dell has offered to buy those shares from Holders; VMware shares are down $1.21, or 0.8%, at $160.81, on multiple price target increases this morning.

Our own Andrew Bary, who first recommended DVMT back in January as a good bet, explored the big discount of DVMT to the offer price.

Andrew writes "there appears to be at least a chance that the tracker investors resist this deal and pressure Dell to increase the price."

Indeed, Josh Kosman with The New York Postwrites that Carl Icahn, who challenged Michael Dell when he was taking the company private back in 2013, is considering challenging Dell on this deal as well, citing multiple unnamed sources.

As for VMware, Keith Bachman of BMO Capital has one of the highest new targets on the stock, $175, up from $155, and the title of his note probably sums up a lot of the bull attitude: "Could have been worse." That's an allusion to fears that Dell would try a reverse merger, using VMware as a vehicle and saddling it with debt.

"VMware's issuing a special dividend is one of the least offensive solutions," he writes, "Although we would have preferred that VMware deploy its capital to its business rather than fund Dell."

Despite Dell CEO and chairman Michael Dell's insistence in a CNBCinterview yesterday that he doesn't intend to buy VMware, "We believe that Dell will eventually buy VMware ," he writes.

Reservations About Tesla's Reservations

Another item investors are mulling today is Tesla's (TSLA) announcement late Sunday that it achieved in the final week of June a goal to reach a production rate for its Model 3 sedan of 5,000 per week.

Instinet'sRomit Shah, who has a Buy rating on the shares, and a $450 price target, writes that the numbers are "an important milestone that we believe reestablishes some credibility."

Moreover, the company's disclosure that reservations for the Model 3 of "roughly 420,000" exiting 2Q suggest "incoming reservations are at least offsetting deposit cancellations."

But not everyone is satisfied. Bernstein's Toni Sacconaghi reiterates a Market Perform rating, writing that despite CEO Elon Musk's enthusiasm for the new production rate, "We've heard this story before."

"Tesla's reliance on an additional ad-hoc production line (the infamous "tent") to meet this quarter's numbers does give us pause."


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And another cautious voice today is Goldman Sachs's David Tamberrino, who reiterates a Sell rating, writing that the reservations number was down from 455,000 in Q1, which is the first time that reservations dipped, and is "incrementally negative."

Meantime, questions continue about the sustainability of Tesla's last-minute production surge.

Reuters's Alexandria Sage and Salvador Rodriguezwrite that Tesla "pulled workers from other departments to keep pumping out the Model 3 electric sedans, disrupting production of the Model S and X lines," and "weekend shifts were mandatory," citing remarks by employees with whom they spoke.

Tesla stock is down $19.81, or almost 6%, at $315.26.

What Did Facebook Know?

Facebook (FB) shares are down $3.73, or 1.9%, at $193.64, after The Washington Post's Craig Timberg, Elizabeth Dwoskin, Matt Zapotosky and Devlin Barrettrelated that the company is being questioned by the combined forces of the Federal Bureau of Investigation, the Securities & Exchange Commission, and the Federal Trade Commission, along with the Department of Justice, about its sharing of information about users, citing multiple unnamed sources.

The authors write that "the questioning from federal investigators centers on what Facebook knew three years ago and why the company didn't reveal it at the time to its users or investors, as well as any discrepancies in more recent accounts, among other issues, according to these people.

"The Capitol Hill testimony of Facebook officials, including Chief Executive Mark Zuckerberg, also is being scrutinized as part of the probe, said people familiar with the federal inquiries."

Square's Brightening Outlook

Shares of payments pioneer Square (SQ) are down 48 cents, or 0.8%, a $62.67, after Susquehanna Financial's James Friedman reiterated a "Positive" rating on the shares, and raised his price target to $74 from $53, after raising estimates, based on an expectations for higher margins. My colleague David Marino-Nachisonhas more on the matter.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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