Roku tale of 2 quarters

Revisiting my earlier take on Roku’s last 2 Qs:

Not my typical “endless scale” SaaS building block software company but is a B2C play on CTV, it sells devices cheaply to then drive a strong ad-driven “recurring revenue” platform. They are getting all the eyes, and starting to leverage their platform more and more (rising ARPU even as active accts grows >+40% each Q). They reversed their margin erosion (why I exited at start of pandemic) and having huge influx of new devices and eyes on their platform over last 6 months, to drive next wave of growth (device sales peaking at +57%!).

con: new countries slow to get a foothold in
pro: new countries they’ve entered before are now kicking in strong, Canada and UK both >100% player sales

Tale of 2 quarters:

Revenue +42% to +75%
Gross Profits +29% to +81%
Platform Gross Margins 56.6% to 61%
Opex +52% to +40%
Active accts +41% to +43%
Platform unit sales +28% to +57% (next wave of growth)
ARPU +18% to +20%
Video ad impressions +50% to +90% (rebound in Ad spend)

Plus they keep sweeping up all new video content providers (Peacock and now HBOMax) - these services can only hold out so long given all the eyes on Roku.

Nowhere near my strongest conviction, but it has been one of my better performers in 6 weeks since re-entering Nov 16 … +48%. (CRWD best at +61% since, then PTON +50%… ZM the worst at -12% over that time.)

Looking forward to seeing where that huge influx of new users (+57% Player Sales) leads it. At some point the active acct growth will wane, but that may not be for a while now that player sales are booming plus the international is kicking in. If ARPU keeps rising even as # of accounts keeps rising so sharply, I would up my position.

Seems worth riding this “out of the norm” (for me) play a bit as I wait to find my next high conviction SaaS building block play (aka a B2B service executing well w/ high gross margins, signs of operational leverage, and a sticky platform that can scale into new directions).

  • muji
    long ROKU 6.5%

Hi muji,

I was a big believer in ROKU pre-pandemic, but exited because of what seemed like a shift in their strategy. Originally it seemed like they were a very complimentary play with TTD, but then seemed as if they were going to try and create their own walled-garden after the Dataxu acquisition. Between that and margin erosion, I got spooked. So I sold for a minor loss in June, which now seems like a huge mistake, given that they’re up over 100% since then.

Your post is quite timely, as I’m now re-thinking a position in them as part of a CTV play. TTD is one of my largest holdings, and I’m considering a position in MGNI as well to capture the SSP side of this market. With DIS+ and HULU partnering with MGNI, and then having ROKU to round it off with partners like Peacock and HBO, it seems like a very lucrative triple play in the CTV area.

Part of my thought process is driven by thinking about my own family’s TV watching habits, and the fact that we just added both DIS+ as well as Peacock to our streaming services line-up. But, since our TV doesn’t have a Peacock app, I was considering buying a newer ROKU for that rather than using a laptop to airplay Peacock to our TV. I figure there are likely a lot of similar families out there :slight_smile:

I’d love to hear your thoughts on this CTV triple-play.




Muji, thanks for the excellent post. On an anecdotal note, when I recently moved to Flordia, the only provider on the island said they no longer provide “cable”. They only provide internet and therefore make you find your own streaming service. I started with ATT-TV, but it was more of a cable model where I got a discount for a year, then they would start jacking the price. I ended up with YoutubTV, which I really like.

Back to the point. I now have 3 Roku boxes and will be getting a fourth. I really like them aside from a few minor nits.

During the election, I got a lot of political ads obviously breaking in on programming right before the show went to break (thus causing me to lose the last sentence or two of the program). I don’t know if this was Roku or YouTubeTV doing this.

For others, note that HBOmax and Peacock did not want to pay Roku and thought they could do it on their own. Both caved, so what does that tell you.

OT Nits: remote does not light up. Volume control is on the side so I frequently accidentally change the volume.

Pro: using the Roku phone app, I can kidnap the volume with my phone and thus can listen on my phone headsets without bothering my wife. Or I can route the audio to an external speaker so I can listen to the football game in the Jacuzzi while I watch the TV through the sliding glass door.

Love the system.