I’ve owned several Roku players over the years; I cut the cord many years ago. As a result, I’ve anchored towards my consumer experience of Roku being a hardware company. As I started to dig into the financials for the first time this weekend, I discovered how completely wrong I’ve been. Being burned by GoPro a few years ago, I’ve been scared of investing in hardware companies ever since. Where GoPro struggled to escape becoming a commodity, it appears Roku is doing exactly that. Roku is becoming a successful platform business and successful platforms, with all their leverage, get me pretty excited.
Take a look at how Roku’s revenue has shifted towards their platform business over the past few years
Q1 Q2 Q3 Q4 2017 36.4% 46.2% 46.1% 45.4% 2018 55.0% 57.6% 57.7% 54.9% 2019 64.9%
How has all of this been possible?
Apart from the growth in stand-alone players, Roku TV has become embedded in Smart TVs and is now the no. 1 Smart TV Operating System in the US. The acceleration has been in impressive.
2017 - 1 in 5 Smart TVs sold in the US comes with Roku TV
2018 - 1 in 4
2019 - 1 in 3
From this quarters Conference Call: “…those OEMs that are not licensing Roku TV are almost all losing market share, and Roku’s OEMs are gaining in market share.”
Roku’s platform revenue is comprised from multiple factors but the no. 1 factor is advertising (although they don’t break out the percentage of ad dollars as a percentage of Platform revenue). So essentially, Roku is an advertising company.
Considering the entire industry is transitioning away from cable/satellite and towards streaming this is a huge tailwind. As the CEO stated on this quarters conf call - “I founded Roku because I believed that all TV and all TV advertising would be streamed. The world’s largest and most successful media companies now share that conviction.”
As evidence that large media companies share this conviction:
“Viacom/Pluto tie-up is the fact that Viacom is taking content that was previously only available through pay TV subscriptions on MVPDs and making it available free over-the-top streaming through AVOD services. And not only will that drive viewing on the platform. I think it will also help accelerate the shift of ad dollars over to streaming.”
Now check out this growth in total Streaming Hours on their platform. This continues to accelerate! Pretty exciting.
Q1 Q2 Q3 Q4 2018 54.5% 57.1% 60.5% 69.8% 2019 74.5%
No position currently in ROKU but will open a starter position this week