My thoughts on Q420 and the overall Roku story.
First off, my prior $ROKU commentary:
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“In 2020, we added over 14 million active accounts, ending the year with 51.2 million active accounts. To put our scale in perspective, Roku’s U.S. active account base is now more than twice the number of the U.S. video subscribers of the biggest cable company.” Look, they also commented that the median age of the viewer of the top three broadcast networks is now over sixty years old. Ultimate mic drop against Linear. I have heard from some what I would consider the world’s best investors that the Roku story is “too complicated” ---- it’s just as easy as I describe in this bullet.
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Upfronts:
a. “In Q4, the six largest agency holding companies more than doubled their investment with Roku on a year-over-year basis, while also committing to significantly larger 2021 upfronts with Roku.” Last quarter, they announced closing upfront deals with all six agencies. Now they are beginning their “spending journey” on Roku.
b. RE: the double of Upfronts investment w Roku on a YoY basis ---- “those are the same agencies that control the vast majority of TV ad spending. So I think that’s a pretty good indication of kind of a permanent reallocation of TV money.”. Upfronts baby, upfronts……
c. Doing the math, this is a big deal – and prob an increase effect on margins…even w agency wholesale rates/margins. Upfront advertising spend in billions from 2016 through 2019 was $18.6Bn, $19.7Bn, $20.7Bn, and $21.2Bn respectively.
d. My belief ---- we will see a massive acceleration on ARPU soon. Couple the Upfronts story w all the SVOD share they are now getting, ARPU is headed up, hockey stick style. -
Roku forecasted Platform Revenue being down 23% QoQ in Q1 – weakest quarter syndrome. No way does that happen. Prior Q120 and Q119 were down 10% and 11% respectively. And the tailwinds have grown in a major way since then. Upfronts, more SVOD (HBOMax, Dis+, Peacock) that Roku capitalizes on now via Roku Pay, more subs, etc., Good on Steve for successfully guiding the quarter down without the stock getting hammered. Set up for Q1 is there. PS, on SVOD, Discovery+, Paramount+, CuriosityStream, and others all coming onboard ---- more tailwinds.
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“It remains true that ad-supported viewing on the platform continues to grow faster than the platform overall and - than the other segments" (vs SVOD). Makes sense. OneView and programmatic are going to be massive for AVOD ---- it already is. Agencies are getting a little taste of OneView prior to going “all in” on it ---- with Upfronts and Roku. One example:
a. OneView has deepened our agency holding company relationships. And licensing of OneView as a component of the upfront agreements that we wrote in Q4, with all the major agency holding companies. Just by way of example, we got brands like Lexus, using OneView to now measure and optimize their spend across linear television and OTT. This sort of gives the Agencies a taste of programmatic before going even more all in. So in short, our strategy is to sell the way buyers want to buy, they’re still buying both ways. It’s still predominantly traditional, but we do believe that, it will be heavily programmatic over time. -
"Performance-based advertising, where the marketer is optimizing for something other than reach or demographics, nearly quadrupled in the year. I believe this the type of advertising where the user interacts directly w the TV. Texts, buys, etc., I’ve toyed around w this myself on the platform ---- you can see the future of advertising at play on this. Facebook and other mobile advertising platforms I feel sure have played around w the same ---- but it’s now here on TV. Roku………
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First party data is winning. Example cited of As an advertiser, why buy direct w Roku vs go through Hulu or Peacock direct. Scott Rosenberg answered it by saying that “we’re complimentary”. Yes, indeed. But as a buyer/advertiser, I want to go through Roku to help discern the best inventory at that time to connect with. Scott wasn’t going to say that in the call, but that’s the real answer. Look, Roku has first party data as well ---- we all know that. BUT, think of how powerful that is when you are looking for the right eyeballs ---- as an advertiser, I want this demographic and want it on the most such eyeballs at this specific time. Roku……………
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TVs. 38% of all smart TVs sold in the US were Roku TV models. Wow. That’s up QoQ. “Not only did the number of Roku TV manufacturers and brands continue to grow across multiple countries, but also several partners achieved substantial year-over-year unit share gains in the U.S.” As a TV OEM, you take that, lower BOM costs, co-op advertising, faster time to market, I mean, you want Roku OS…………
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The Roku Channel (TRC). They added another 50 linear channels this quarter. Sort of wonder if they are headed down the path of TRC being its own MVPD some day. Sort of like a YouTube TV. Non competitive based against existing content providers and not channel conflicting with advertisers. Perhaps. Either way, TRC is here to stay and is growing, massively ---- 14% QoQ…faster than the Roku platform as a whole.
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International. They cited 1Bn broadband households in the world ---- and that they are all going to watch TV via streaming some day. Look, at this stage, I’m kind of like…”DUH, we know that”…… I’m sort of ho-hum on their international progress. I know that the great majority of revenue opportunity is coming form the big dog countries (US, UK, Canada, Brazil, etc.,). But let’s get some of the other big dogs rolling too ---- Western Europe, Australia, etc., Spend the $$$ ---- lets get after it. International takes time ---- you’ve proven the model. Go spend and plant seeds please.
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“We anticipate the growth rate in operating expenses for 2021 to be more in line with 2019 year-over-year organic OpEx growth levels versus 2020 when we took precautionary steps at the outset of the pandemic to manage down the rate of expense growth.” Investments growing again ---- good. YES! Let’s do that. Go, go, go.
DISCLOSURE. $ROKU is my largest holding. 25% of my portfolio.
The thesis remains intact and the winning continues. Lets keep it rolling………………………