Int'l expansion as a driver for growth: ROKU

This is the first thread I’ve ever started on a TMF board, and I don’t plan to do it very often unless it’s an important idea of general interest. But this seems both timely and relevant to our search of high growth companies, and I’d like to both share my thoughts and solicit your input. A Friday SA article on ROKU finally gave me the nudge I needed. Here’s the general idea; a simple concept:

A fantastic opportunity for high growth is during a company’s pivot from being mostly domestic to having a large international footprint.

Example: On Jan 1, 2012, nearly all of Netflix’s subscribers were domestic – about 22 million, compared with just a handful of international. The (adjusted) stock price was $10. SOURCE: this chart https://www.statista.com/chart/10311/netflix-subscriptions-u…

Fast-forward to July 1, 2019. Netflix had ~60 million domestic, and 91.5 million international subscribers. The stock price was $375. Netflix probably still would have been a double-digit bagger in this time had they stayed domestic. But their international expansion was a driver for growth, and that itself contributed to the stock’s value multiplying several times over. I’m sure we can come up with other companies that have multiplied several times over by going international.

On this board, we look for high growth opportunities. Things that can double or triple in a few years. Some of our favorites are disruptors that we think will multiply several times over if they keep doing what they’re doing. We’re not usually asking things like “how much can ___ SaaS company grow if it expands to Europe”, because often that isn’t a natural question due to the nature of most SaaS products. (Or is it? I would assume that many “grow without borders”. Perhaps TTD would be a candidate.)

Here’s my Question for all of you, along with some of my thoughts. What other companies that we like have this “international pivot opportunity”?

I’m posting this because I see this potential in ROKU. Over 90% of its revenue is domestic. On Friday, I saw this article on SA:

https://seekingalpha.com/news/3479401-roku-expand-brazil-glo…
Roku has plans to expand to multiple international territories, likely starting in Brazil, Variety reports. [link to the Variety article within, worth reading]…It’s also been hiring staffers in its Amsterdam office with an eye to further expansion in Europe, which could happen before year-end.

I have a small position in Roku, but plan to expand it due to both wonderful combination the domestic growth potential (see 12x’s post on this board from 7/20/2019), and the
international growth potential.

Misc. questions/comments:

–Caveat: I haven’t looked into the actual likelihood of international growth success of Roku, beyond just the aforementioned articles. But it makes a lot of sense.

–I really don’t know much about the domestic vs. international footprint of our SaaS companies (e.g., AYX, ZS, OKTA, TWLO, TTD), both current and potential future expansion. Perhaps someone more in the know on this can weigh in?

–I travel internationally a lot, and one striking difference I’ve noticed is how much more of a cash society many countries are than the US. Cash is more prevalent in Europe, and even more so in many parts of Asia. I went to a fancy 5-story onsen (traditional spa) in Osaka a few years ago, and was shocked how that was cash only.

Of course, cashless transactions are increasing everywhere, but the growth is more pronounced in the more “cashless societies” than in the US, where it seems saturated for those who don’t travel. As Denny might say: cashless transactions are in a much different part of the S-curve in these places. This is why I’m long on SQ, PYPL, MA, and V, which I consider the “conservative part” of my portfolio. I’m not sure which of these will be the big winners, but I’m still hoping for more years of double-digit growth for this sector.

Speaking of which, I’ve been a bit surprised at SQ’s lack of international growth. Google searches bring up a bunch of articles from 2016-2017 on this, but not much recent. [Does anybody know why? They’re only in the US, Canada, Japan, Australia, and the UK.] Perhaps iZettle (Swedish company owned by PayPal) will win in Europe. See also: https://www.fool.com/investing/2017/04/02/square-enters-euro…

–Shot-in-the-dark question for people with knowledge of international laws. Do you know of any non-obvious obstacles to international expansion in certain sectors (e.g., finance/banking regulations for SQ, real estate barriers for Zillow, etc.)

I would love to hear your feedback. Am I barking up the right tree? I’m particularly interested in where you think I might be wrong, and what my blinds spots are. I know there’s a lot of loose ends in here, but let’s keep this thread on-topic. Thank you.

Matt

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-Caveat: I haven’t looked into the actual likelihood of international growth success of Roku, beyond just the aforementioned articles. But it makes a lot of sense.

I recommend looking into it, and letting us know what you find. I’m sure you’ll get more feedback if you make a case instead of just posting the idea. All the rec’s you got show that there’s interest.

Bear
Asst Board Mgr

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