A Profound Moment

I have been a ROKU investor and board champion for the company dating back almost one year now. Unfortunately in that time the stock has been dead flat, and I’m underwater over the mean of various price point entries. There are no doubt metrics or trends in the company’s earnings reports that a bear thesis could be built around, but the key metrics that kept me invested seemed to be doing great. Dating back to Q1 2018, these are as follows:

  • Users are up 91%
  • Streaming Hours are up 158%
  • Average Revenue per User is up 61%
  • Platform Revenue is up 208%

Frustrated with the lack of stock advancement, I reached out to a respected board member over email in attempts to unearth information that might have gone overlooked. Between summarizing his thoughts in a recent monthly write up, along with my thoughts, the following areas were touched on:

  • Some can’t get past viewing them as a hardware company
  • Their service isn’t game changing
  • The world is moving away from analog and towards digital streaming
  • New ad spends fueled by economic re-openings
  • A change in policy regarding session length and user inactivity
  • The general volatile nature of the stock
  • Dataxu acquisition and new ad sales approach serving as a future catalyst

Still, I couldn’t crack the code. Why wasn’t this stock performing as well as I think it should be? What else might happen in the near future that would change that? How long do I want to wait around to find out? And then I had a profound moment.

Why am I wasting my time trying to find something hidden, when there are companies such as Zoom literally obliterating every metric and expectation right in front of my eyes?

When there is a company growing revenue at 169%, going from $15m free cash flow to $252m, going from 10m daily meeting participants to 300m, going from 100 billion meeting minutes to 2 TRILLION, increasing customers with a >$100k spend by 90% and customers with 10+ employees growing by 354% why am I wasting my time trying to figure anything else out?

I understand many on this board already know everything I’ve typed above, but I’m sure there are many who haven’t been stopped dead in their tracks with such a realization. I’ve been investing for sixteen years, and have been following this board for the last two, and only recently did the light bulb finally illuminate. Be ruthless in your investment choices. Stop making things more complicated than they need to be. There is no extra money in getting complex stock analysis right.



Be ruthless in your investment choices. Stop making things more complicated than they need to be. There is no extra money in getting complex stock analysis right.

The only problem I have with this is had you done your ruthless analysis and switching from any point of ZM’s public trading to 2/2020, ROKU had been a better performer in the stock market.

Roku stock has returned 307% since going public in October 2017, and was up as much as 540% in September 2019. It’s not like we’re talking about Nutanix or Talend here.

If I were to guess why ROKU stock has been languishing recently, it’s mainly due to their deterioration in Gross Profit % in the platform revenues. They have since pulled gross profit margin guidance and said that the dataxu acquisition had pulled the GM their more than expected.

The story is not nearly finished for either of these companies. Roku has already said they are spending heavily for future growth and right now Wall Street does not like losses, but rather companies that can show profit and operating leverage. This shift happened around September of last year when stuff like WeWork and Uber were going public. That to me is why Roku shares have languished as of late.

What would happen for Roku shares to rebound? Probably stabilizing/improving in platform gross margin and continued growth. I/we really have no idea as to if/when this will happen and there are many moving parts to the Roku story. We have seen now that the International expansion is not a 2020 story but will take multiple years.

My $.02.


Thank you for your thoughts, both here and in other posts on this board. While I used ROKU and ZM for my specific example, there are no doubt comparisons that could be made for any company, including the ROKU vs ZM performance returns you mentioned. My general thesis was that it is ok to sell a company whose growth story “will take multiple years” and go with one whose growth story is happening right now.



I think you have probably found a gem in ROKU. But a great business model or service sometimes takes time to become realized by investors. And the business needs to throw up the numbers. If you get in early and you are convinced by your research, it is reasonable to be patient and hold steady.

The numbers at ROKU are pretty good as folks move from linear TV to OTT connect TV: very strong user account growth and steady ARPU growth. But ROKU has suffered from confusion caused by the COVID recession/ad spending falloffs against good user growth. In other words ARPU is not jumping and maybe will drop as user accounts continue to increase. Other stocks discussed on this board have not had confusion. And given the COVID induced accelerated move to digital economy, stocks like DDOG, COUP, TWLO, LVGO, and ZM have rocketed. Now many on this board will argue to pull the trigger on ROKU and go after a stock that has a greater near term opportunity for stock appreciation. If we see a V shaped return of advertising, the ROKU revenue and more importantly ARPU will jump and the near term opportunity will be upon us for ROKU. Right now we have ARPU growth for 26% YOY. I am hoping to see this double in 1 year if not sooner to 50%. That is the IF!

Active Accounts M 29 30 32 37 40

ARPU $ 19 21 22 23 24

If this is achieved, the value of ROKU will be realized by investors and experience a big spiffy pop by the end of this year. At least I hope so as I have a full position at ROKU. But then again I am walking and chewing gum at the same time and also own DDOG, LVGO, ZM and my favorite SE. Good luck.

long ROKU



I had exactly the same thought process as you articulated in this post some days ago after seeing muji’s excellent Roku Q1 recap and finally I made a decision to exit all my remaining 5.5% Roku position and buy into Zoom.


Thank you again for your great post.


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There is no extra money in getting complex stock analysis right.

True - and this doesn’t qualify as complex stock analysis. This is all about when the growth story slows down. Even a little. And sentiment. Then it will be on to the next thing that “everyone” is being ruthless about in their investment choices. And investors in these stocks will have to be ruthless as well. There’s no fundamental / complex reason why Roku shouldn’t be a darling stock, except it’s not of the moment.


Be ruthless in your investment choices. Stop making things more complicated than they need to be. There is no extra money in getting complex stock analysis right.

Agreed. By the same token if you understand the company well, its competitive advantage etc. why be concerned about short term price movements? You never know when the stock may take off. After all the car company’s (which we won’t name) SP did languish for years before taking off. Even Fastly and Livongo were fairly flat for 9 months before going up 4x in the last 3 months.
Of course your analysis of the company could be wrong and the market could be telling something by not awarding the company with a good SP. If there are 2 companies that are executing well is it always better to buy the one with a better RSI? That will be interesting to find out. Maybe 12x has some insight.


I’ve not been a very vocal supporter of ROKU, though I am long. I went through pretty much the same thought process as you but came away with the notion that ROKU remains a good opportunity with quite a lot of upside potential - But it’s hard to argue with reality, the stock price performance was not in keeping with what I perceived to be the opportunity.

I sold about half my position (same for MDB) and rotated the money into DDOG and ZM.

You can analyze this stuff to death, and many folks who follow this board do a fantastic job of digging in and digging deep and then are generous enough to write up their analysis and post it here. The membership of this board is quite astonishing. It is entirely to Saul’s credit that he has attracted this amazing community of investors.

My point is that after your own analysis and evaluating the contributions of others, ultimately the decision is yours to make. If you’re ambivalent after all that, it’s OK to make a decision that reflects that ambivalence. Yes, be ruthless if you have a high degree of confidence in your investment choice. But if you’re on the fence, it’s OK to make a decision that reflects that position as well. It needn’t be all or nothing. Over time I might exit ROKU completely. OTOH, I might make a larger commitment to this investment at some future point.


I posted a version of this in the Roku premium boards. I have stated my view on the main subject of this thread towards the end. If you are not interested in Roku you can skip and go there directly.

  1. Roku has always competed with amzn, apple, google and grown to be #1 in OTT. Android TV preceded Roku yet Roku is winning. Also, it is important to know that because then one can judge how TCL’s new android TV will fair against Roku TV models.
  2. Roku has a cost adv. vs competition due to purpose-built OS and low-cost hardware. Roku’s hw and OS superiority are important because that is how it gets to be #1 in accounts and customer engagement. Both of these are necessary for growing ARPU.
  3. Neutral player - not retailers, content producers, TV OEM. Neutrality is important. Maybe a CPG brand may want to spend its advt. $ in Roku over Firestick.
  4. As far as I can remember Roku has been saying that AVOD is growing faster than SVOD. Now it may be growing of a smaller base sure. But the trend is in the right direction. Recently, Roku gave a metric that Netflix has come down to 1/3rd of viewing hours from over 1/2. Of course, that could be due to Disney+ and other SVOD options now. Last Q they said AVOD almost doubled in hours watched.
  5. Surveys have shown that OTT has 29% of cable TV viewership but only 3% of cable TV advt. $. All industry experts say advt. $ will follow viewership. This is similar to what happened for digital vs print back in 2008-09. In the last EC Roku’s survey showed that people aged 18-34 watched more OTT than linear TV if I recall.
  6. If advt. $ flows into OTT will Roku get its share? I saw somewhere that 50% of all OTT ads in US are in Roku. Roku ad platform is constantly innovating. With Dataxu and first-party data they can serve up programmatic ads. See the recent innovation around no-repeat ads w/ linear, and Roku shopper data program. Brands who want to advt. in OTT will look at Roku and they should get their fair share.
  7. In a recent investor call, they have said their sponsorship rev and audience discovery rev are down which are high margin. They are counting all of Dataxu as rev, unlike TTD which takes only the 20% cut. So, that impacts margins. Their ad business is only 50%+ GM. So, long term platform should trend towards 50%+ GM. Also, this year advt. prices are under pressure and I will be curious how it impacts Fb and Google’s GM as well.
  8. Roku platform rev has been growing at over 75% every Q for the last 4Qs. It is on par with elite SAAS. I still expect platform to grow over 40% this year. Based on TTM platform rev it is valued at a P/S of 15 which is low even after discounting for lower GMs.

As you can see I see many plus points in Roku. But clearly Roku’s stock price has performed poorly this year.
You could say the same with Elastic as well. Over the last 12 months, the company has executed well but its stock price has not matched its growth.

In these situations, when the company is executing but my confidence in the company is not shared by the market I have decided to keep my position sizes smaller than what I would normally have instead of selling out. I am not saying that is correct, it is just a different way to think about it.


Hi Texmex,

this is great summary… I agree with your viewpoints… and have same conclusion… I have reduced my position to half over last 3 weeks… however, I intend to buy few calls to still keep high exposure as I believe ROKU business likely to see a lot more positives and acceleration in 2nd half of 2020.

One question - if Dataxu revenue was fully counted in the last quarter, that should mean ROKU organic growth was lower than top line but also the organic GM% higher than overall. Have you come across any of Dataxu numbers to make this deduction?

Roku made $13M from Dataxu in Q3 2019 and given that small amount said they will not be breaking that out in future. They addressed the GM a lot in this call, satisfactorily in my mind. Yes, it is something to watch for but not yet a deal-breaker.