But, Roku themselves say the trend has changed. They withdrew 2020 guidance (which I don’t feel is truly justified) and said:
We anticipate that our ad business will continue to grow substantially on a year-over-year basis, albeit at a slower pace and lower gross profit than we originally expected for the year.
So, tell me how you think Roku’s revenue will grow faster when they themselves are saying to expect slower growth?
They pulled guidance for the year… shocker. Given what had just taken place I’m not surprised and not concerned in the least bit in their retraction of guidance. It may be how I’m interpreting your writing style but it seems you are implying that their trend of growth has changed for good and is doomed to decline for the foreseeable future. Nowhere in the conference call did they make a comment indicating they see their trend of revenue growth or the movement to OTT had changed. As you pointed out they said they expect their growth will continue but at a slower pace for the year than they had anticipated. In fact one of their statements following the one you quoted indicates they believe the trend will accelerate and not slow.
Steve Louden – Chief Financial Officer
“…Just a couple of stats. Prime-time linear consumption is down 18% year over year from mid-March to late April. For adults under the age of 35, half of their TV time over the last month has been done on OTT and streaming instead of linear. Meanwhile, streaming and Roku is up 8% in April.
So right there in a microcosm, you can see a significant shift in consumer habits. What we’re observing here and what we believe is happening is that major disruptions are going to accelerate the change that was already under way here between linear and OTT.”
In addition, the CEO answered another analysts question with the following:
Anthony Wood – Founder and Chief Executive Officer
“Yes. This is Anthony. Yes, Roku TVs, that program is doing really well. In general, we’re seeing very strong demand for Roku products. New accounts are up over 70% in the last few weeks, which is tremendous growth. Both players and TVs are doing really strong.”
“This is Anthony. I’ll take the growth potential in the U.S. I mean there’s a lot of room for Roku to grow both domestically and internationally. There are probably 1 billion households around the world that have broadband and they’re all going to switch to streaming.
So I mean, if you just look at the recent numbers, I mean, definitely being accelerated by COVID, but over 70% new account rate growth year over year is very strong. So I do think there’s room to continue growing active accounts. I don’t think we’re a reach saturation.”
To put this in context the average year over year growth in new accounts is around 36%. We have no idea if this 70% growth number is sustainable or how long it continued after they made the statement in their conference call but it does point to an increase in accounts due to COVID.
As they explained:
our advertising business has seen cancellations as some marketing budgets have declined, but this has been partially offset by new marketing budgets moving to Roku from traditional TV given the cancellation of high-profile live sporting and entertainment events as marketers follow viewers and increasingly seek targeted measurable forms of advertising.
Note the phrase “partially offset,” not fully offset.
the overall ad marketplace is down and Roku is not immune. That said, we are much better positioned than linear television.
Isn’t this a double-whammy? First that Covid isn’t the boost to Roku that people might assume (remember whether you watch 1 show or 1000 shows on Netflix Roku gets the same amount, which might be nothing). Second, that they’re looking to linear television for comparison? As I’ve been trying to say, the real market is mobile. Roku talks tens of millions, while mobile companies talk billions. Yeah, linear tv is dying and they can grab some of that marketshare. Little pond. What Roku isn’t saying is how they will capture revenue as more and more people stream on mobile first and primarily. That’s where the real growth is.
I’m not seeing any whammies here. Yes they made a comparison to linear television and I see that as justified since they are pulling ad revenue from them but I really don’t see a negative in making the comparison they did. I disagree with your assumption that COVID wasn’t a boost for ROKU. Granted they saw an “…uptick in cancellations in the pipeline slowdown in mid-March.” in reference to ad revenue but they still grew revenue by 55.2% yoy for the first quarter. Additionally they indicate they saw an increase in new user accounts at a rate of 70% yoy vs. their average of 36%. I count this as a COVID boost and here’s why. Over the past year ROKU’s Average Revenue Per User has been as follows and is growing.
Q1-20 Q4-19 Q3-19 Q2-19
$24.35 $22.58 $20.00 $19.60
So if they are seeing an increase in their growth of new accounts I would anticipate an increase in their revenue growth rate sometime in the near future. Will it be this quarter or next, I don’t know. I also don’t invest for the next one or two quarters.
Finally, you make mention of their TAM and say it is a small pond and the real growth is in mobile. Yes, there is real growth in mobile I wouldn’t argue against that for a second but that doesn’t mean there isn’t room for ROKU to grow. OTT isn’t a winner take all game, there will be numerous winners. I personally will never first and primarily stream my content via mobile. I like to see my shows on this grand 65 inch TV I have in my living room and not my wee little IPhone screen but hey that’s just me. The CEO indicates he believes their TAM is 1 billion accounts. I personally don’t know if I agree with his assessment just based on how he phrased his answer but I’ll bet he has a better grasp on the TAM than I do.