This is a good article on Roku from Beth on what she sees an important year.
https://www.forbes.com/sites/bethkindig/2020/04/30/will-roku…
9 Likes
After their last ER, the stock sold off, and the analysts opinion is they didn’t like the losses, and the costs associated with international expansion. My summary last Q on the Tinker board is this will either be a bargain the stock market is offering with it’s renewed focus on earnings and disinterest in stocks with losses, or, the whole thing doesn’t work out. And that was before the COVID selloff. I am taking the latter approach and have ROKU as a good portion of my portfolio, will see if this plays out over the next year or 2.
ROKU has seasonal aspect due to consumer play
In Q4, zero margin hardware grows strongly affecting overall margins…
In other quarter, platform revenue takes more prominent impact…
So I would look at TTM basis, rather than just last quarter.
Their revenue growth Y/Y on TTM basis have been
June 2018: 39%
Dec 2018: 45%
June 2019: 49%
Dec 2019: 52%
Their gross margin for 2017 was 39%, 2018 was 45%, 2019 was 44%
For last five quarters:
ARPU is growing at between 25% to 30%
Active accounts growing 35% to 40%
Streaming hours is growing 60%+
On TTM basis, They were FCF breakeven (+/- 1%)for 4 out of last 5 quarters. Last quarter they burnt large chunk of cash to go to -6% on TTM basis… This one I am not sure what they explained. Looking at the cash flow statement, cash from operations ended up being ~$13M in each of 2018 and 2019. However, they spent almost $59M more capex in 2019… I would assume this has to do with investing into international expansion and more servers they need to support increased traffic.
Anyway, with >$500M cash in the bank at the end of Dec 2019, I am not worried about their investment into building out future…
One thing Saul mentioned is certainly worth watching is platform gross margin. It has come down in 2019 over 2018… again they lump so many various things in there, it is hard to discern actual factor driving that… but its worth watching.
All in all, ROKU is progressing on so many fronts simultaneously makes it difficult to evaluate… but that is why it is also “reasonably” priced. Long term it certainly looks like CTV version of Android app store AND youtube ads rolled into one. As long its top line growth, gross margin and FCF remains in right range (on TTM basis), I am likely holding it for a while.
12 Likes
I would be very cautious on the international expansion bull case. I live in London and the TV market here is predominantly Samsung/LG.
My friends and I all have Samsung and the OS is very good, allows you to add new streaming apps easily, so I see very low adoption of Roku in the UK and Europe.
I agree that I don’t see Samsung and possibly LG giving up their in house OS solutions (although LG might in order to compete vs Samsung). However I do think there are 2 international expansion opportunities:
-
Local countries tend to have their own local national brand champion which dominates local market sales particularly in either emerging markets or protectionist markets (a good example would be Arcelik in Turkey) but they don’t tend to have the tech or budget to invest in an OS. They can turn to ROKU.
-
At some point some up and coming low cost nation is going to compete with LG and Samsung in the same way that they displaced the Japanese market leaders Sony, Panasonic and Toshiba back in the day. Those companies won’t start with top level tech and deep pockets and might well start out with ROKU.
Ant
3 Likes
I am not impressed with LG OS or Vizio…I haven’t used samsungs.
Roku is very easy to use.