ROKU Earnings Review

[brandonwahl]

Beth Kindig has recently posted ROKU’s Q3 earnings review on her free blog, and also continued to outline the bull case for the company. The article is an easy read, and touches on many issues, but I wanted to highlight the following main thesis:

“As is always the case, the market has a record of underestimating small companies that are battling with other big companies like Apple, Disney, Google, and Comcast. Roku does not compete with Disney+, Netflix, or HBO Go because those are subscription services…Roku is capitalizing on Connected TV ads…the opportunity is so ripe, it’s hard to quantify.”

You can see this ripe opportunity in the following numbers, taken from ROKU’s recent shareholder letter:

Active Accounts: 16.7m (Q3 '17) to 23.8m (Q3 '18) to 32.3m (Q3 '19)…this is 36% yoy, and up 93% in two years.

Streaming Hours (same yoy model as above): 3.8B to 6.2B to 10.3B…this is 68% yoy, and up 171% in two years.

Platform Revenue: $57.5m to $100.1m to $179.3m…this is 79% yoy, and up 211% in two years.

Average Revenue Per User: $12.68 to $17.34 to $22.58…this is 30% yoy, and up 78% in two years.

For a “small company” these are not small numbers.

https://beth.technology/roku-earnings-review-q3-2019/

Brandon

[fireblade909]

That’s a useful recap of her article. She also touched upon 2 other interesting points:

One is the volatility that is to be expected with these smaller businesses challenging and competing with the megacap incumbents. This is something very topical in these parts of Fooldom with our 30-50% declines in some holdings. It has required some degree of fortitude to keep the faith in the face of these declines so it is also reassuring to hear another supportive view from Beth on the general gyrations. I will consider adding to ROKU if/when the market volatility presents another price opportunity

Another point she does mention is the lack of earnings that has kept a lid on the share price in view of the rapid growth. This is an important element of the context for the volatility. Earnings have become a higher priority for the valuation that the Market assigns. I am not maxed out on my ROKU holding so I am happy to add more when the market does its hissy fit

[addedupon]

Beth’s ROKU work over the past two years has been exceptional! One of the clearest and most helpful i have seen on the longer term case for the stock.

My hefty stake in ROKU began before i read Beth, soon after the IPO. I was drawn by Anthony Wood’s leadership gifts after learning about the device when one of my children bought one for me. But since reading Beth, i have increased my conviction in the stock.

This compelling matter of ROKU’s privacy edge, i learned from her some time ago. IIRC, she first raised it in her first $100 prediction call. I think it is very important and i have never seen anyone else discuss it but her.

As i wrote here in post 58966 regarding Beth’s work on ROKU:

"I would add one more competitive advantage that ROKU has which is associated with their proprietary ad tech data to which you refer. While targeted, they don’t individually identify targeted consumers, but rather by demographic, unlike the increasingly untrustworthy giants seen as going to far in threatening privacy such as Amazon, Facebook, Netflix, and Google (who maintain specific names, addresses).

In that regard, the only serious competition to Roku hypergrowth that i can see is from the recent deal between Amazon and TTD…"

IIUC, Beth has been pounding the table that ROKU is in a class by itself in its ability to provide highly targeted, first hand, relevant, demographic information for OTT advertisers that accumulates no names or other personal information of the specifically targeted demographics.

This compelling privacy edge is a part of the ROKU strength that is understood by very few investors IMO, which likely contributes to the ROKU momentum players being subject to FUD and the crazy stock fluctuations up to now.

So the one area with which i might disagree with Beth on ROKU is her suggestion that the wild stock undulations will continue at the same wild rate in the future. As Beth’s insights on ROKU’s privacy protection advantages become more widely apprehended by investors and become increasingly apparent to advertisers, that FUD must eventually decrease, and the stock price, like the revenue, might rise more steadily.

Therefore, I am probably inclined to ignore the scary technicals from this point.

[hmcproperties]

In my personal portfolio, I hold significant positions in ROKU, TTD and TLRA as a basket of companies I believe will benefit greatly in the years to come as programmatic/digital advertising continues to grow along with OTT and as the cord cutting/never corder revolution continues.

So when I contribute as a board member in this forum it is helpful to know that I write of these companies from that perspective; just as it is helpful to have the transparency into Saul’s, Bear’s, Bert’s, etc. portfolios and having insight into their holdings as perspective when digesting their board posts.

Regarding addedupon’s informative and interesting post here, it may add perspective to understand that the analyst about whom addedupon writes invested in ROKU at the IPO, sold at $60/sh, re-entered at $40/sh and ROKU now represents the largest singular position in the analyst’s personal portfolio. I am sure this is probably covered as a disclaimer in the analyst’s free blog posts, but it may be worth repeating here for this audience to add perspective when reading the posts. No Harm No Foul…it just may help.

p.s. I am a subscriber to that service as well.