stocknovice's August portfolio review

Andy -

Thanks for the link. That article does appear to give Fire TV the lead in accounts. The other way it can be broken down is the number of devices. From that perspective, Roku might have the lead. From the most recent shareholder’s letter (https://ir.roku.com/static-files/df3d060c-0975-4903-83d3-0e1… ):

A range of studies confirms the strength of Roku’s position in the U.S. marketplace. According to Kantar Millward Brown, Roku is the #1 TV streaming platform in the U.S. by hours streamed. Last month, Strategy Analytics reported that the Roku operating system powers 41 million OTT devices and smart TVs in the U.S. This is 36 percent greater than the next closest competitor and expected to grow. Recently released Parks Associates consumer survey data reveals Roku had 39% of the US streaming media player installed base as of Q1 2019.

There’s an accompanying chart detailing the Strategy Analytics info that’s worth a look. Regardless, I view all these sources as reinforcing the idea that Roku is seeing success in increasing the number of eyeballs using it’s platform even when you acknowledge competition does indeed exist. I’ll likely remain a shareholder as long as that trend continues.

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Roku’s streaming TV platform accounted for more than 30% of US sales of connected TV devices in Q1 2019, further increasing its lead in streaming TV platforms according to the latest research from Strategy Analytics. The report, USA Connected TV Device Vendor Market Share Q1 2019, finds that there are now more than 41 million Roku-based devices in use, including Roku media streamers and Roku-based smart TVs, accounting for 15.2% of all media streaming devices. Roku now has a 36% lead over the next major platform, Sony PlayStation, in terms of devices in use. The report predicts that this lead will stretch to 70% by the end of the year, largely as a result of the success of Roku’s smart TV partner strategy.

https://www.businesswire.com/news/home/20190626005529/en/Rok…

ROKU absolutely dominates installed base and sales in the US. There may be a number of reasons for the disconnect with MAU numbers, namely Roku’s lack of a substantial international presence. Maybe difference in the way they define MAU.

This was what I was referencing though. I’m not sure of the maturity for ad supported content in other countries, but I’ll try to have some more comments later when I have more time.

The most important thing is Streaming Hours. Roku rules streaming hours I believe, though I’m having trouble finding where I read that. It is in the shareholder letter, but I was looking for the source that had more details. Again that’s US based.

I’m in a FireTV household myself, but what I’ve researched has shown that ROKU is the dominant player here.

Darth

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Hey guys, there are now 37 posts on this ROKU thread and people seem to be repeating and repeating what they, or someone else has said. I’m not asking to stop the thread, but how about easing off unless you really have something new to add.
Thanks,
Saul

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There’s an accompanying chart detailing the Strategy Analytics info that’s worth a look. Regardless, I view all these sources as reinforcing the idea that Roku is seeing success in increasing the number of eyeballs using it’s platform even when you acknowledge competition does indeed exist. I’ll likely remain a shareholder as long as that trend continues.

I think your right Stocknovice. I like the numbers they are putting up so I have changed my mind. I think I will take a position in them. I don’t like that they are a closed system but if they can get a third of the streaming it would be huge.

Thanks to all for the discussion.

Andy

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I’ve been considering the relative merits of Roku and The Trade Desk for a while now. In the end, I think they have about an equal opportunity in the advertising space.

In Roku’s case, if you peg the future CTV ad market to eventually reach 200 billion, give Roku 1/3 of streamed hours, and 30% of ad revenue streaming through its service, you’re looking at peak revenues of about 20b.

In The Trade Desk’s case, if you peg the entire programmatic market to eventually be at 1 trillion usd, and allow for The Trade Desk to be transacting 10% of programmatic spend through their platform, and taking 20% of that as revenue, you’re also looking at peak revenue of 20b.

Which of these scenarios is more likely? That’s surely an exercise in speculation. But it’s clear that both companies have the potential to become behemoths.

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ROKU absolutely dominates installed base and sales in the US. There may be a number of reasons for the disconnect with MAU numbers, namely Roku’s lack of a substantial international presence. Maybe difference in the way they define MAU.

Darth, I believe international presence is exactly it. ROKU’s OS has a huge lead in US market share. Amazon FireTV has more users at this point. And from what I have read, Amazon and Roku are counting active users in the same manner (don’t know where I read it nor do I have the article handy but they are essentially the same).

Roku only just started investing in international markets. In the company’s fourth-quarter letter to shareholders, management said it’s increasing its international investment this year. While the company doesn’t expect those investments to show any meaningful account growth this year, it says the benefits of those investments will start showing up in 2020 and beyond.

So Roku created a business worth $15 billion just concentrating in US, and just started selling international. What remains to be seen is whether Roku can duplicate it’s huge market share lead in other parts of the world. I’m staying long while this one plays out.

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YouTube was pulled from the Fire TV system a while ago. Not sure if it’s still there.

I bought an Amazon Fire TV a year or so ago on Prime Day. I got it for a great price.

It has a variety of apps on it to include YouTube, Netflix, news apps, sports apps and more. I’ve read the various posts on Roku and I recently opened a small position in the company. However, I’m wondering how long I will hold it. I don’t see a moat for them. I do see a huge moat for Amazon and I’m holding the few shares I have. I don’t believe their growth is over yet.

Fool on,

mazske

Long AMZN

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So Roku created a business worth $15 billion just concentrating in US, and just started selling international.

International is a market for CTV/OTT ads that still is ripe for hyper growth. Still almost completely untapped. And being that ROKU is almost entirely US and is accelerating ad revenue approaching 100% mark, US is just getting starting too.

End of 2017 data is the most recent I can find.

Pixalate measured worldwide Connected TV/OTT programmatic ad impressions throughout 2017 for this study. The United States easily leads the way, with 85.7% of all Q3 2017 programmatic TV ad impressions being served in that region.

85% up from 75% earlier in 2017. Do we think this trend has changed much?

http://blog.pixalate.com/programmatic-tv-connected-ott-unite…

From same research company different article.

According to Pixalate’s data, Roku dominated the Connected TV/OTT programmatic ad space in 2017.

In January 2017, Roku accounted for over one-third (36.2%) of the space:

By October 2017, Roku had nearly doubled its market share, up to 68.8%

*note that all ads on OTT/CTV are not programmatic, so yet another number to be curious about.

If you overlap this data with that of the other data about dominate and expanding US installed base (where the money has been) and platform revenue (which is mostly advertising) accelerating from 79% in Q1 to 86% in Q2. Seems pretty compelling.

Darth

Bear,

Wanted to follow up after doing some research. Saul, sorry to continue this but hope it adds materially to the discussion.

What do people stream?

From MRQ 10-q:

In the six months ended June 30, 2019 and the year ended December 31, 2018, Netflix and YouTube accounted for more than 50% all hours streamed in each period.

YouTube is NOT paying Roku

From 10-Q:

although YouTube’s free ad-supported channel is the most viewed ad-supported channel and the second most viewed channel overall by hours streamed on our platform for the six months ended June 30, 2019 and the year ended December 31, 2018, we do not receive material revenue from it.

You were correct! It turns out there’s lots of ad-supported choices out there – but they’re far less popular. That said, they’re apparently adding enough incrementally to get the market excited.

Best,
Brian

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Wanted to follow up after doing some research. Saul, sorry to continue this but hope it adds materially to the discussion.

Brian, it does! This is why you’re my favorite Fool writer. Well, that and your constant clear writing…which I haven’t seen as much of lately…I wish the Fool would make a better feed so I better could follow the writers I like. Sorry, tangent.

In the six months ended June 30, 2019 and the year ended December 31, 2018, Netflix and YouTube accounted for more than 50% all hours streamed in each period…we do not receive material revenue from [YouTube]. (and I assume Netflix either)

I’m not surprised Netflix and Youtube account for 50%. So that’s $0 revenue on 50% of the hours streamed. It makes it all the more amazing to me that Roku is making $21/year per user! I actually think the ad buyers are getting ripped off. Think about it. Netflix gets what, a little over $100/year per subscriber. $21 for ad supported content is a lot! They’re touting 9.4 billion hours, but half are unrelated to ads.

Makes me nervous more than it makes me interested. But I’m sure others see it differently.

Bear

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TWLO – It’s no secret I’ve been questioning the size of my Twilio allocation the last couple of months. This month I finally took action and pared it down considerably. My final steps to get there consisted of two parts. First, I dug into their 7/31 earnings:

stocknovice,

This was a really outstanding portfolio review writeup! I particularly liked how you analyzed each situation and recent business results and linked that back to your decisions.

I have been having similar thoughts to you about TWLO. I had a large 17-18% allocation on TWLO for a while and I also had made a rather large options bet on a stock move to the upside after the past earnings result. It ended up being my largest options loss of 2019 (about a loss of 1.2% of my portfolio value). I didn’t think TWLO’s result was horrible or anything but I was disappointed that they didn’t hit it out of the park like the past 2 earnings. I was hoping that Flex would see more traction and that TWLO would start to see some synergies from their SendGrid acquisition. Also, with Signal 2019 coming up, my options bet was based on seeing a continuation of their recent massive earnings beats and some exciting announcements out of Signal.

Recently, I reduced my TWLO allocation from 16.1% down to 12.1%. One third of the proceeds will be reserved as cash to pay for my capital gains from my TWLO sale. The other 2/3 of the proceeds were used to buy ZS shares to boost my allocation to 13.2%.

I still think TWLO will be a great investment but now I just don’t know how long they will start seeing financial rewards from Flex and the SendGrid cross-selling. The next near-term hope for TWLO may be the spend on TWLO from the 2020 US Presidential Election. Last year, TWLO had a rather large one time revenue benefit from an election in another country. I think we can expect that the spend on the US Presidential Election will dwarf that other election. When will the spending start and for how many quarters will the spending last?

Chris

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I’m not surprised Netflix and Youtube account for 50%. So that’s $0 revenue on 50% of the hours streamed. It makes it all the more amazing to me that Roku is making $21/year per user! I actually think the ad buyers are getting ripped off. Think about it. Netflix gets what, a little over $100/year per subscriber. $21 for ad supported content is a lot! They’re touting 9.4 billion hours, but half are unrelated to ads.

Bear,

Do you mean to say ad sellers are being ripped off? Roku is an ad seller. Or is Roku ripping off ad buyers (companies that buy ad inventory on Roku)?

It makes it all the more amazing to me that Roku is making $21/year per user!

Hi Bear,

From Roku’s shareholder letter, their annualized revenue from platform alone (not hardware) just hit $672M this latest quarter (multiply $167M by 4). They have about 31 million user accounts, so you simply divide $672M by 31M, and you get about $21 per user per year.

The important thing to note is that the $21 per user has grown from only $17 per user 12 months ago. Why is it growing? It’s because each user is viewing more streaming hours that are ad-supported this year compared to last year. Total streaming hours went from 5.5 billion a year ago to 9.4 billion today.

See https://ir.roku.com/static-files/df3d060c-0975-4903-83d3-0e1…

Ron

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From Roku’s shareholder letter, their annualized revenue from platform alone (not hardware) just hit $672M this latest quarter (multiply $167M by 4). They have about 31 million user accounts, so you simply divide $672M by 31M, and you get about $21 per user per year.

This is not the correct calc ROKU uses for ARPU.
Take the average of subs from this Q and the same Q last year. Take TTM platform revenue divided by that number to get ARPU.

AJ

Thank you, SAUL, and your team! So important to have this perfect, helpful BOARD.

SO DISCOURAGING TO SEE MY PORTFOLIO GO DOWN AGAIN, TODAY…EXCEPT FOR WONDERFUL ROKU!!!
A good time to buy more?

SO DISCOURAGING TO SEE MY PORTFOLIO GO DOWN AGAIN, TODAY…EXCEPT FOR WONDERFUL ROKU!!!
A good time to buy more?

I’m sorry, STJ, and I understand your enthusiasm, but that post is a Poster Child example of a post that doesn’t add anything to the board but just takes up space. Please think before you post: “Does this post add anything to the board?”

Thanks

Saul

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I think there are two aspects to ROKU that have been “under-discussed” here.

One is the perspective of a small to medium content provider that would like to get their content out there, but doesn’t want to lay out monthly fees for this privilege, nor has the technical and logistical capability to worry about their own ad-serving.

A number of people here seem to ask the “why would X give up their ad revenue to ROKU” question without really considering what it takes to be able to serve ads. SERVING ADS IS NOT A TRIVIAL UNDERTAKING. It actually takes a lot of infrastructure (people, hardware, software) and know how. Think about it for a second: you have to have a software platform that allows potential ad buyers to browse available ad inventory, select one of multiple possible ad formats, see ad targeting information (viewer and content statistics, etc.), manage the concept of ad campaigns, test/pilot potential ads, submit ads for placement, see statistics on ad performance, etc. etc. etc. And if you want to be a modern ad platform, you better have some machine learning and other advanced capabilities in your platform too, or the Google’s and Amazon’s and TTDs of the world are going to eat your lunch and no one is going to place any ads with you. And, btw, even if you have a software platform that does all this, you are STILL going to need a kick ass sales team to attract ad inventory away from the giants.

So, yeah, if you are YouTube, you’ve already got all this infrastructure, and you have no reason to give away any of your ad inventory. But if you are just about anybody else (including not small names like BBC, Discovery Channel, Fashion Network, etc., etc.) it’s a very different story. In fact, when ROKU comes along and says: “hey - as long as you have the content, we’ll put it on our 39m user network, help you create your app, stream your content for you, basically provide everything else - and you don’t have to pay us a single dollar in upfront fees, or worry about anything - we’ll do all the work and just take a cut of the ad revenues for ads shown to people who watch your content” - what are you going to say? I think you might say “OMG, this is AWESOME, where do I sign?!”

Remember, most apps on Roku are NOT YouTube. They are small to medium content providers who just want to get their content out there without a lot of work or upfront cost. The Roku value proposition is VERY appealing to these people.

Now the other aspect to ROKU that’s been under-discussed in the consumer aspect. There are a LOT of people out there who are looking for near-free content options. A LOT of people don’t want to pay any monthly content fees AT ALL. There are also a LOT of people out there who maybe pay for Netflix, but can’t afford to pay for anything else. Yet they still like to have choice in what they watch. Here, Roku’s marketing is key. People know that when they buy a Roku, they pay once for the device, and then they get tons of channels for free. Sure, they are not HBO or Showtime, but the sheer choice is nice, and that lack of a monthly fee goes a long way. They also know that YouTube will work. And they know that if they do have that one paid service like Netflix, that will work too. And they know that they will get a nice remote and best in class usability.

Now maybe those people might consider an Amazon FireStick as well. But the first thought in their head might be, well, it’s Amazon, so I’ve got to have Amazon Prime to get real value out of this thing. Maybe they have it, maybe they don’t (again, lots of people do NOT like to pay Prime annual fees). Even if they do have it, they probably think about YouTube next. Hmm, I heard YouTube is a pain in the butt to use on Fire devices. You have to jailbreak them and stuff. That consideration alone will kill it for 95% of people out there. Then they might think about AppleTV for 5 seconds. YouTube is no problem, but then they will see the price. Wait, I know - why not just get a cheap Roku device where everything works nicely?! Click - there is another user for Roku! When you think about it this way, it’s pretty apparent that Roku’s support for YouTube (even though they get minuscule revenue from it) is actually a brilliant move.

Now put these two factors together.

One one hand, Roku is a godsend for every second and third tier content provider out there, all the way from the BBC down to some pretty niche and specialized content providers. Sure, none of them are Netflix or Hulu individually, but combined, they are the rest of the content world, and there are still some pretty big names in that mix.

And on the other hand, every user who is watching their wallet, but still wants to have a broad choice of free content available to them, is also choosing Roku. Which, of course, gives Roku even more eyeballs, and more data for their machine learning algorithms that feed the ad targeting features of their ad platform. Which ultimately makes their advertisers happier. Which makes them pay more and place more ads with Roku rather than with someone else.

I don’t know about you all, but that strategy really clicks for me.

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Hi Shikotus,

Now maybe those people might consider an Amazon FireStick as well. But the first thought in their head might be, well, it’s Amazon, so I’ve got to have Amazon Prime to get real value out of this thing. Maybe they have it, maybe they don’t (again, lots of people do NOT like to pay Prime annual fees). Even if they do have it, they probably think about YouTube next. Hmm, I heard YouTube is a pain in the butt to use on Fire devices. You have to jailbreak them and stuff. That consideration alone will kill it for 95% of people out there. Then they might think about AppleTV for 5 seconds. YouTube is no problem, but then they will see the price. Wait, I know - why not just get a cheap Roku device where everything works nicely?! Click - there is another user for Roku! When you think about it this way, it’s pretty apparent that Roku’s support for YouTube (even though they get minuscule revenue from it) is actually a brilliant move.

This is incorrect. Amazon and Google have made up. Also, saying that people do not like to pay Amazon prime, well those would be the same people that do not like to pay for Netflix. But with Amazon prime you get so much more then just streaming video.

YouTube is returning to Amazon’s lineup of Fire TV products, and the Amazon Prime Video app will be adding Chromecast support and become more widely available on Android TV.

https://www.theverge.com/2019/4/18/18412525/youtube-amazon-f…

Andy

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Thanks Andy, good to know Amazon and Google have made it up. I think it actually very much proves the point that Roku has been smart to stay neutral and consumer focused. It sounds like Amazon and Google have realized that while they fight, others gain the advantage, and put their differences behind them. Good for them. I think my broader point stands, though, which is that Roku’s long-standing branding and marketing of their devices as maximally consumer-friendly, provider-neutral, and affordable has been well-executed, and continues to win them customers (especially ones that don’t necessarily follow all the latest development like you and I might). I also think that pound for pound, Roku still has the smoothest, most visually appealing, least-cluttered user interface and the best overall user experience of the three.

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fantastic post shikotus…

part of the reason ROKU has been highly volatile and under-appreciated for a long time is this lack of understanding of its value prop to its multitude of stakeholders. What you described is amazing insight to me.

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