Roku broken thesis?

Roku international expension is what I would expect as growth potential. But now with TCL (top 5th brand of tvs sold internationally source:

(https://www.trendrr.net/2413/top-10-led-tv-brands-in-the-wor…)

Now tcl will have Google instead of Roku on the newer models.

Is it time to dispose of Roku or is thesis for growth in place?

Anyone smarter and more knowledgeable, please share your opinion and knowledge if we should consider dropping Roku?

Thank you

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Now tcl will have Google instead of Roku on the newer models.

TCL is offering a Roku version AND a Google version as described here. I’m not even sure the google version is new, I think it was announced in January.
https://www.cnet.com/tech/home-entertainment/tcl-adds-google…

Anyway, yes, I think it’s premature to think that the Roku thesis is broken because one company comes out with a google version of their TV. Maybe we will see some short term weakness as people freak out Puru Saxena’s tweet announcing this ‘news’ though.

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Here in Mexico I’ve been seeing Google TCL TVs in the stores for at least two years. This is nothing new. That said, international expansion to date is probably the weakest point of the Roku thesis. But this hasn’t changed since last month or last week or last year.

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Having said that, they have concentration risk wit TCL and are still shut out of the real top tier TV manufacturers. I’ve seen software companies many times over hit complete wipe out when their hardware partner dumps them. The risk is significant in my mind.
Ant

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Google has had a partnership with TCL for a while. This is old news.

Google isn’t even the race… This is a race between ROKU and AMZN.

Click here: https://twitter.com/SH4MR0K/status/1425242032725970945/photo…

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Here is the news from June 2020:
https://www.tcl.com/us/en/press-releases/tcl-launches-first-…

ROKU is only up about 260% since then.

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Roku will never exist in a world without Google and Amazon or Apple or PlayStation.

TCL is a great partner for Roku and remains that way. As is often told on this and other boards follow the numbers. And Roku has been told was a Covid stock and has accelerated every quarter since the pandemic except for the first one where advertisers pulled back.

Google is almost non existent in US and is a minor player for streaming hours worldwide despite international installed base. Maybe Google after 10-15 years at it finally gets somewhere with getting another TCL deal. Or maybe Roku just keeps winning.

Darth

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I think there is too much optimism around Roku right now. If you read the CNet article carefully they say:

“And no, you can’t switch between the two operating systems on the same TV (sorry).”

And they go on…

“We want to make this OS-agnostic. We want whatever’s best for you, personally, to be your best choice,” says Chris Larson, senior vice president for TCL North America. “We still believe in the basic tenets of the TV performance … but consumers today want more than that. They want gaming, they want streaming, they want IoT control, they want these things” that Google’s software allows.

That is a problem for Roku.

https://www.cnet.com/tech/home-entertainment/tcl-adds-google…

This means they are introducing a Google TV-only model. This has the potential to reduce Roku’s market share and increase Google’s market share. Roku also called out the hardware component challenges they expect to face this quarter which also has the potential to slow down the growth of their userbase. While the increasing ARPU story is great, they still need to get more users into the ecosystem and this is a headwind that has the potential to limit growth.

Ultimately, this distribution problem may just be insurmountable for Roku to overcome. Google has more money and could conceivably just push them out by paying for exclusive contracts. Google has issues and a lack of focus is a big one. It’s true that Roku has thrived for a long time in spite of all this competition.

I sold a few lots of Roku that I had that were now underwater to harvest the tax loss. I haven’t decided yet if I am going to hold onto the rest or just reallocate everything.

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I purchased a ROKU TV from Walmart several months ago and it was manufactured by Hisense. I also owned a ROKU TV by TCL that failed after a few years. When was the last time anyone had a TV fail.

Jeff

The news on TV OS’s has not really changed much in the last couple years. Don’t let short term headlines on TV sales distract you from the investment thesis. ROKU and AMZN have the dominant positions and this will continue at least for the next couple years. This is because of having the better OS and first mover advantage. GOOG, Samsung, and others are all seeing the AVOD money ROKU is making and they want some of the punch. ROKU CEO Anthony Wood has said that GOOG is the competitor he worries about the most. Probably because GOOG is smart, bigger, and have monetarily leveraged Android very successfully in the phones. So make no mistake, the tactical trench warfare will continue between AMZN and ROKU but the strategic war is with GOOG.

International expansion is the thing to watch. This is a costly, slow process due to regulatory and logistical challenges in each country. It is a country by country introduction. But this effort started 2 years ago (e.g. UK and Brazil) is deliberate and starting to show progress. This is an additional growing competitive moat. Any lack of substantial international user growth should be taken as a warning sign. BTW I cannot find the Q3 international user growth numbers. If you have them, can someone post them. I do have a concern with player sales and supply chain bottleneck. The player margins are not a concern (razor and razor blade model). But a constrained supply of player inventory will throttle international user growth, albeit it already has.

Anthony Wood Q2: Within the Player segment, we expect global supply chain constraints and
component cost increases to worsen in the second half of 2021, leading to increasing negative player gross margin.
We believe these industry supply chain constraints and cost increases for streaming players and TV OEM partners will continue into 2022.

I trust that the incredibly successful monetization in the US will translate to international similarly. I see no reason not. Q2 81% revenue growth and platform 117% growth (AVOD mostly) is outstanding. While user growth was up 28%, ARPU was up 46%. Of course revenue comps with 2020 will become more challenging in Q3/Q4. Remember Q2 2020 was a dud quarter that led to a collapse of ROKU revenue and stock valuation. This is what provided me the buying opportunity to load up at ~$100/share. And then 2020 Q3/Q4 lockdown streaming and new AVOD revenues appeared that drove the stock high.

So the road forward will be a little bumpy for ROKU. I need to decide whether to continue a large >10% position in ROKU. When you compare something like an UPST that has no 2021 headwinds versus ROKU, what is the lost opportunity cost? Fortunately I established a full UPST position the last month so no regrets here.

-zane

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