Combining Growth & Value: ROKU Revisited

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Combining Growth & Value: ROKU Revisited

I believe ROKU has been discussed here, but I haven’t searched for the threads. I’ve been adding to existing positions but ROKU is my only recent new purchase, so I thought I’d provide a mini-update for anyone possibly interested. Feel free to skip this if the idea isn’t appealing to you. This is my first quick look and I have not studied in depth at all, as a local project seems to be taking most of my time.

Its short history makes ROKU a bit of an unknown when it comes to future expectations, but let’s take a quick look at some numbers
Sales Growth

Year	Sales	Growth
2015	320	100.0%
2016	399	24.7%
2017	513	28.6%

2018 quarterlies look like this:

Period	Q1-18	Q2-18	Q3-18
Sales	137	157	173
Increase	14.6%	10.2%

So sales are increasing annually at the rate of 25-30% and climbing. Positive, but no screaming “gotta have it” numbers so far.

Net Income
Net income for the first 3 years has been negative, as expected, and negatively increasing. -41,-45,-64. However, the last 4 quarters are bouncing around the zero mark: +7, -7, +1, -10. So with a good Q4, ROKU should be able to show a positive net income, or close to it.

Things I like:
• The buzz: Everyone I’ve talked to who’s tried ROKU swears by its combination of excellent features, user interface and low cost.
• Ability to include geographically local channels.
• Low cost in comparison to other streamers.
• The chart: http://schrts.co/kwpN1v ROKU has been hammered hard, maybe too hard.

Things I question:
• ROKU has substantial accounts receivable. I haven’t looked into the “why” but see little reason off hand for any sizeable receivables with a streaming subscription model. Needs study.
• Competition in streaming is plentiful. While I think ROKU is steadily making its name in the field, the speed of change is likely to increase steadily. Other than Netflix and Prime, I don’t think the winners are stable even in the short term, let alone 5-10 years out.

Next Steps:
I’ve taken a mid-size starting position (5%) but haven’t had time for in-depth study. So when time becomes available, there are many steps left for me to take: Listening to conference calls, studying their website, and subscribing to their service to see the value for myself, plus studying the financials in more detail. For now, I’m satisfied to hold a small piece of ROKU and expect it to retrace much of its recent price drop. Your mileage may vary.

By mid 2020, ROKU will likely be a full-size entry in my focused ports, or forever history.

Best to all,

Dan

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Combining Growth & Value: ROKU Revisited

Dan,

Do you happen to have a breakdown of their source of revenues and how much of it is reoccurring? I have owned many media players in the past including Roku’s and actually just bought one for my dad when visiting over Thanksgiving. While I think the devise is nice and Hulu was much improved since that last I used it, I am not sure how they generate reoccurring revenue or do they just generate revenue from the sale of the HW and other licensing deals with TV manufactures.

I currently have an older AppleTV and Nvidia Shield. But as far as I can tell, the Nvidia would only make funds from the sale of the player. AppleTV potentially from any purchases down through the iTunes Store but I don’t use it that way.

I am considering a new AppleTV as it supports Dolby Atmos through Netflix but I am still hoping that Netflix will add the Nvidia Shield to their list of supported devises since the Shield is capable of doing Atmos.

So far I haven’t seen ROKU support ATMOS so have not considered going back to their devise.

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just a user’s perspective without a hard breakdown…

the point of competition cannot be underrated here. this stuff is changing so fast. At our house, I started with a Roku (and loved it), however we ended up using the Amazon streaming devises bc of the prime subscription and seamless integration. Some ppl lean toward the AppleTV setup for the same reasons but this is one of those things I like to toy with as a consumer but not as an investor.

-Christian

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I have a Roku device. I do not pay a monthly subscription to them. I bought the h/w and that’s all I paid. I don’t understand their revenue beyond h/w sales, but I’ve not looked at it. I assume they could sell advertising, maybe they already do as I often get promotional messages for various stations and shows.

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Roku sells advertising. There are many court cutters who do not subscribe to a linear TV service (such as Sling or DirectTV Now). The only way to reach them is through a device like Roku. Presently Roku says they have 10 million such active viewers and growing.

Roku therefore is selling themselves as a media platform like Yahoo!, UTube, New York Times, etc., but one more valuable because it is TV.

As an example, the CW has their own streaming channel where you can watch Flash, Green Arrow, or whatever show they have on. These are reasonably popular. On the Roku device you can target these people. Roku knows information on them because you have to sign in to set up your Roku and you sign in to each of these channels. Thus your email address is known. There is also warranty information from the warranty card for the Roku.

Roku also has their own Roku channel where they offer free movies (I don’t recall if they are HD or not) and they have a side banner ad, that for example, recently, promoted the Mary Poppins movie.

Much of this is the sort of thing TTD hopes to play into as well, but without owning the media platform like Roku does.

I just upgraded my streaming player from Apple TV to Roku Ultra. The reason being is to upgrade to the latest Apple TV that will play in the highest 4K format, the cost is $189 or so. For Roku, to get the latest 4k $89 (and there is are less expensive options all the way down to $39 to enable 4K on the Roku).

In the end I believe the Roku is superior to Apple TV (and I own 3 iPads, 2 MacBooks, 1 iPhone, have 2 Apple TVs - one was free (and I use it for presentations), but with Apple TV, the Apple eco-system (unless you bought a ton of media from iTunes) is mostly irrelevant. Thus the Roku platform should further proliferate.

It is the ads from the Roku equipped smart TVs, from their streaming players, that base of known viewers that creates the media property that TiVo is selling and that they hope becomes gargantuan and much more profitable over the years.

To date, while TTD stock goes up, Roku stock has gone down. To date while Roku has reasonable growth, TTD growth has accelerated.

A trend, random market action, your choice. TTD however appears to have accelerating momentum while Roku has gotten “cheap”. But it is that media platform, that is already 10 million strong, that is the future of Roku and the investment thesis.

Tinker

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I’ve owned 3 ROKU players (2 standalone and 1 inside a TCL TV). They are great. The killer app they have is search. Let me explain.

We subscribe to Netflix, Hulu, Prime, HBO and sometimes Starz (we don’t have cable TV and get the major networks over the air for free). My guess is we’ll add Disney in the future. So when I want to watch something specific, I want to see on which service I can watch it, and compare prices if it’s available in multiple places. So I search in the Roku, and it finds prices & availability for that show across all of the services I have, and even some I don’t have. This is invaluable to me. Perhaps the other players do this too, I am not sure. But Roku is pretty much neutral which I like.

Roku is also embedded within the TCL TV’s (sold at Costco) from China. These TVs to me seem as good as the established players and are 20-30% less. I own a 65 inch 4K model that cost $625 or so, including the Roku. I wasn’t even looking for a TV but I saw how cheap they were and had to upgrade from my 50". I’ve had it for 6 months and have been very happy.

I’m not sure how powerful Roku’s advertising will be. You really only see it on startup or when searching for a specific show or switching streaming services without the shortcut button on the remote. I don’t spend a lot of time looking at the Roku screens - I suppose I reliably see a few ads a day, but most of my time is in the streaming services themselves. The advertising tends to be for a specific show or movie, and it’s probably targeted based on my family’s viewing history.

None of this speaks to Roku’s financials but thought it might be informative about their devices/service for those of you who don’t currently use one.

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Roku is also embedded within the TCL TV’s (sold at Costco) from China.

I think this is the part to watch, which models license the software and embed it in the TV. As many are using Roku’s or AppleTVs to “cut the cord” per say, next would be for people to want to cut the box all together.

Will smart TV’s pay Roku for their software or use something cheaper like Android? If Roku can support Dobly Atmos, I would get one but for the time being I will stick with the Nvidia Shield. I just can’t bring myself to pay for the AppleTV for that single feature as it would add another box to my setup (I still need the Nvidia regardless if I go for a Roku or Apple TV as it still provides additional functions over both those boxes.

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“Roku is also embedded within the TCL TV’s (sold at Costco) from China. These TVs to me seem as good as the established players and are 20-30% less. I own a 65 inch 4K model that cost $625 or so, including the Roku. I wasn’t even looking for a TV but I saw how cheap they were and had to upgrade from my 50”. I’ve had it for 6 months and have been very happy."

TCL is looking to restructure and leaving the consumer electronics business.

https://technode.com/2018/12/11/tcl-pivot-to-panel/

Rob