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Amazon's Fire TV Is Widening Its Lead Over Roku

Amazon's (NASDAQ: AMZN) streaming device has had a strong start to the year. The company announced it reached 30 million active accounts on its Fire TV devices in January, and it's already grown by about 4 million users so far this year. Jen Prenner, Fire TV general manager, recently announced at an industry event that the company reached 34 million active accounts.

For comparison, Roku (NASDAQ: ROKU) reported 29.1 million active accounts as of the end of March. Amazon's lead is growing compared to January, when it had about 3 million more active accounts than Roku.

For both Amazon and Roku investors, it's important to understand where Amazon's Fire TV growth is coming from and its potential to keep growing.

Image source: Amazon

No. 1 everywhere

Amazon claims Fire TV has grown to become the No. 1 streaming platform in the U.S., U.K., Germany, India, and Japan. It sells at least some version of Fire TV in several dozen countries, and the device works with Prime Instant Video in dozens more. Roku's sales footprint is comparably smaller, with operations focusing on North America, parts of Latin America, the U.K., and France.

Indeed, Amazon's success in international markets may be propelling its Fire TV user growth. Amazon launched Fire TV in India about two years ago as it was making a push with Prime and its original video content in the massive market. Prime Video quickly became more popular in India than Netflix, so it's no surprise the affordable Fire TV Stick is popular in the market. Prime Video's also extremely popular in Germany and Japan, which also made Prenner's list.

The international market presents a massive opportunity for streaming platforms like Fire TV and Roku. Adoption is still in the relatively early stages in many markets. Roku, in fact, outlined plans to increase its investment in international markets in its fourth-quarter letter to shareholders.

"These are still early days for us on the international front, and thus international distribution is unlikely to be a major driver of 2019 account growth," management wrote. "We expect to start seeing greater benefits of these investments show up in international account growth in 2020 and beyond." So, Amazon's lead internationally might continue to expand before Roku can start catching up, if it ever does.

Can Roku catch up?

Roku has a couple of advantages over Fire TV.

First, it's largely agnostic toward streaming services. Fire TV's main focus is on Prime Video. If you're not a Prime member, the user interface for Fire TV may be far less appealing than Roku's.

That said, Roku has been investing heavily in The Roku Channel, which offers its own library of licensed content. And management has expressed its aspirations for a content-first user interface in the past. That could result in Roku redesigning its home screen to put a greater focus on the Roku Channel. At least for now, Roku doesn't push you toward any specific streaming service.

Secondly, Roku is showing great strength in the smart TV market. Mangement says it took one-third of all sales in the United States in the first quarter. As consumers eventually replace their existing televisions with smart TVs, Roku's dominance in the market could enable it to take accounts from Amazon since the operating system is built right into the television.

Roku is still only a small player internationally when it comes to smart TV sales. But the more diverse market and range of manufacturers should enable it to grow its share of the market considerably over time.

Yet Amazon has the advantage of an ecosystem of services that feed Fire TV device sales. Prime members are likely to prefer Fire TV over Roku for easy access to Prime Video content. Consumers who want access to Alexa, Amazon's voice assistant, won't find many cheaper options than a Fire TV Stick. Amazon is building out an ecosystem that could keep users on its platform despite Roku's best efforts.

The market for connected streaming devices is still growing for now, so both companies can win new customers. But the gap between Fire TV and Roku is something investors should keep an eye on to indicate the relative strength of each platform.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Roku. The Motley Fool has a disclosure policy.


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