Photo courtesy of Roku.

Some so-called “stay-at-home” stocks have performed relatively well in recent weeks during the broad market downturn.

On Monday, one analyst discussed a stay-at-home battle playing out between Netflix Inc NFLX  and Roku Inc ROKU.

Needham's Laura Martin reiterated her Buy rating and $200 for Roku and her Underperform rating for Netflix.

The Thesis

Martin said there are at least three reasons she likes Roku more than Netflix.

1. She said Roku is a better value trading at 6.2 times enterprise value/revenue compared to 7.8 times for Netflix.
2. She said Roku’s balance sheet is superior to Netflix’s in a time of uncertainty in the credit markets. Roku has $100 million in debt, $500 million in cash and annual EBITDA of at least $32 million in each of the past two years. Netflix has $15 billion in debt, $5 billion in cash and Needham is projecting between $2 billion and $4 billion in negative free cash flow in 2020.
3. Finally, Martin said Roku is benefitting much more than Netflix from the coronavirus quarantine. Quarantined Americans are certainly using both services from home. However, Roku’s advertising-based model is benefitting from usage increases, while Netflix’s subscription-based model is not tied to viewing hours.

“Although hours streamed are growing during COVID-19, we prefer Roku, which has a volume-based revenue model (ie, advertising CPMs) based on viewing time rather than NFLX, which charges the same price regardless of hours viewed,” Martin wrote in a note.

Benzinga’s Take

For Netflix to benefit from the quarantine, it would need the outbreak to drive subscription growth rather than additional viewing hours from existing subscribers. Given the financial uncertainty in the U.S. at the moment, many Americans may be hesitant to add on another paid subscription service, even if it costs just $12.99 per month.