but that doesn’t seem like much of a moat to me.
Oh well. They have a dominant market share that they are pulling away with.
The non-ROKU or non-FireTV smart TVs are not an adequate experience. I’ve been using FireTV for years and there’s no way I’d ever use the clunky experience on my Samsung TV. And ROKU is pulling away from FireTV so they have either a better product or a better strategy or both.
Roku’s moat is ease of use. When dealing with the public that’s a pretty strong moat. And if the OS on their TV is Roku they’re not going to have a choice but to use it. I am concerned however Roku may be running out of tv makers to sell to and not get much higher than their current 33%. When Samsung has 33% of all TVs sold. That leaves another 33% max to go after.
Darth: Respectfully that should be obvious. Billions of ad impressions. What else are you going to watch you tube on. A phone? To stream it on the TV you make a deal with ROKU and Amazon, etc.
Haha. Saying “respectfully” doesn’t magically make a condescending statement respectful.
And yes, a phone! I’m sure countless people consume YouTube that way. Yes, streaming through Roku or Fire is a common way to watch Youtube on a television, but I’m suggesting that Roku and Fire benefit more from this than YouTube does.
Darth: And ROKU is pulling away from FireTV so they have either a better product or a better strategy or both.
That’s wrong, according to this, because it’s FireTV that has more eyeballs: https://www.fool.com/investing/2019/05/16/heres-how-many-fir…
hmcproperties, that was a great list. You kind of broke it down to hardware, subscriptions, commissions, and advertising. Leaving hardware aside since it’s not a path to great profits, I would imagine the lion-share of their platform revenue comes from advertising, but as I said, it would be really nice to have a breakdown. Within advertising, your points here seem like the key ones. I’d guess 90% of Roku’s revenue comes from:
8. Advertising: Roku makes money when Roku sells the ad inventory it gets from all ad-supported publishers (including YouTube). Roku gets ad inventory from publishers in lieu of taking a cut of each publisher run add because Roku feels that it is too hard to track and monitor. Roku prefers to just take ad inventory in exchange for the extended audience reach Roku provides.
9. Advertising: Roku makes money on when selling Roku’s own add inventory on Roku’s own channel; The Roku Channel.
It’s extremely hard to understand how they somehow make $21/year per user and rising. Sure, as Darth said, “billions of ad impressions.” But for the impressions from #8 above, shouldn’t almost all the revenue go to Netflix, Youtube, HBO, etc?
I would guess #9 is a tiny amount, but I don’t know for sure. Have they said how many of the 9.4 billion hours watched last quarter were on their “Roku Channel?”
Thanks,
Bear
The non-ROKU or non-FireTV smart TVs are not an adequate experience. I’ve been using FireTV for years and there’s no way I’d ever use the clunky experience on my Samsung TV. And ROKU is pulling away from FireTV so they have either a better product or a better strategy or both.
What are the numbers Darth? We know that Roku has 30 million subscribers, Amazon does not give out their numbers but if you have them please post them. I don’t believe Roku is pulling away from Amazon because of prime day and how many firesticks they sell.
I think people pick their tv because of the picture not the os. Then they go out and pick a box to try on their tv. Samsung is trying to incorporate the Tv as the screen to the smart home, controlling everything including the tv. That is interesting. Amazon is trying to do the same thing with Alexa. I see this as a big fight with Google, Amazon, Apple, Roku all fighting it out.
Here is an article dated 2019 discussing all the tv platforms.
https://www.techradar.com/news/television/6-best-smart-tv-pl…
Andy
Bear,
From the standpoint that I am not very “tech oriented”; I compiled the list of revenue sources having read various articles over the past few days; Digiday, TechCrunch, TMF and a few others. You ask a number of good questions that I too am looking to answer.
Although I am not a SeekingAlpha subscriber; there appears to be a rather topical, subscriber only article that ran on SeekingAlpha dated April 22, 2019 and titled “How Does Roku Actually Make Money”. That may unlock a few more of our questions, but I am unable to access.
For what its worth for this discussion, the lead-in to the SeekingAlpha article introduces the topic of Roku’s revenue being broken down into three streams:
To date, the problem I have had deciphering revenue streams is that Roku appears to lump advertising revenue into “Platform Revenue”. Perhaps a deeper dive into the ER or CC transcript may unlock some answers.
Harley
Harley, I looked at the 10k. They don’t break down platform revenue. They say it’s made up of advertising and subscriptions.
There are multiple ways Roku generates revenue, many of them irrelevant. For example selling operating systems to tv makers is not a meaningful addition to revenue but it is a source.
The way I see it and what’s important is getting Roku operating systems anywhere and everywhere so people use the Roku Channel and watch the advertisements. Every market share report I see out there says Roku is the dominant streaming operating system and the lead is growing. Not sure why the disconnect with amazon FireTV market share.
The way I see it and what’s important is getting Roku operating systems anywhere and everywhere so people use the Roku Channel and watch the advertisements. Every market share report I see out there says Roku is the dominant streaming operating system and the lead is growing. Not sure why the disconnect with amazon FireTV market share.
Amazon Fire TV’s lead over rival streaming platform Roku is widening. In January at the Consumer Electronics Show in Las Vegas, Amazon said it had “well over” 30 million Fire TV users compared with Roku’s then 27 million active users. In roughly four months’ time, Fire TV has grown to more than 34 million active users, according to new statements made by Amazon this week. Meanwhile, Roku grew its account base by 2 million in the first quarter of 2019, to reach 29.1 million active accounts, per its earnings report this month.
https://techcrunch.com/2019/05/15/amazon-fire-tv-tops-34-mil…
Andy
YouTube was pulled from the Fire TV system a while ago. Not sure if it’s still there. But Amazon just made a browser based workaround. So from that standpoint it seems the platform needs the content more than the other way around, at least when Google and Amazon are both selling add on devices.
It’s hard for me to get Roku. The last time I was in the market for a TV about 2 years ago my research led me to Samsung, LG, Sony, and Vizio. I didn’t even know RCA was still in business until I saw it was a partner on the Roku site. They seem to have cornered the market on lesser known TV brands but does that mean they will hit a ceiling and any major TV brand will use their own system?
They are producing, and maybe simply replacing lower end legacy TVs will be enough for growth. Relying on cord cutting for growth does seem a bit risky as the major cable companies could always just decide to offer their own packages to compete with cord cutting (especially Comcast if NBCUniversal ever gets a streaming service going).
Maybe these long term issues are irrelevant. Just follow the money which shows Roku hitting it out of the park, and wait to respond when the issues actually materialize.
Andy -
Thanks for the link. That article does appear to give Fire TV the lead in accounts. The other way it can be broken down is the number of devices. From that perspective, Roku might have the lead. From the most recent shareholder’s letter (https://ir.roku.com/static-files/df3d060c-0975-4903-83d3-0e1… ):
A range of studies confirms the strength of Roku’s position in the U.S. marketplace. According to Kantar Millward Brown, Roku is the #1 TV streaming platform in the U.S. by hours streamed. Last month, Strategy Analytics reported that the Roku operating system powers 41 million OTT devices and smart TVs in the U.S. This is 36 percent greater than the next closest competitor and expected to grow. Recently released Parks Associates consumer survey data reveals Roku had 39% of the US streaming media player installed base as of Q1 2019.
There’s an accompanying chart detailing the Strategy Analytics info that’s worth a look. Regardless, I view all these sources as reinforcing the idea that Roku is seeing success in increasing the number of eyeballs using it’s platform even when you acknowledge competition does indeed exist. I’ll likely remain a shareholder as long as that trend continues.
Roku’s streaming TV platform accounted for more than 30% of US sales of connected TV devices in Q1 2019, further increasing its lead in streaming TV platforms according to the latest research from Strategy Analytics. The report, USA Connected TV Device Vendor Market Share Q1 2019, finds that there are now more than 41 million Roku-based devices in use, including Roku media streamers and Roku-based smart TVs, accounting for 15.2% of all media streaming devices. Roku now has a 36% lead over the next major platform, Sony PlayStation, in terms of devices in use. The report predicts that this lead will stretch to 70% by the end of the year, largely as a result of the success of Roku’s smart TV partner strategy.
https://www.businesswire.com/news/home/20190626005529/en/Rok…
ROKU absolutely dominates installed base and sales in the US. There may be a number of reasons for the disconnect with MAU numbers, namely Roku’s lack of a substantial international presence. Maybe difference in the way they define MAU.
This was what I was referencing though. I’m not sure of the maturity for ad supported content in other countries, but I’ll try to have some more comments later when I have more time.
The most important thing is Streaming Hours. Roku rules streaming hours I believe, though I’m having trouble finding where I read that. It is in the shareholder letter, but I was looking for the source that had more details. Again that’s US based.
I’m in a FireTV household myself, but what I’ve researched has shown that ROKU is the dominant player here.
Darth
Hey guys, there are now 37 posts on this ROKU thread and people seem to be repeating and repeating what they, or someone else has said. I’m not asking to stop the thread, but how about easing off unless you really have something new to add.
Thanks,
Saul
There’s an accompanying chart detailing the Strategy Analytics info that’s worth a look. Regardless, I view all these sources as reinforcing the idea that Roku is seeing success in increasing the number of eyeballs using it’s platform even when you acknowledge competition does indeed exist. I’ll likely remain a shareholder as long as that trend continues.
I think your right Stocknovice. I like the numbers they are putting up so I have changed my mind. I think I will take a position in them. I don’t like that they are a closed system but if they can get a third of the streaming it would be huge.
Thanks to all for the discussion.
Andy
I’ve been considering the relative merits of Roku and The Trade Desk for a while now. In the end, I think they have about an equal opportunity in the advertising space.
In Roku’s case, if you peg the future CTV ad market to eventually reach 200 billion, give Roku 1/3 of streamed hours, and 30% of ad revenue streaming through its service, you’re looking at peak revenues of about 20b.
In The Trade Desk’s case, if you peg the entire programmatic market to eventually be at 1 trillion usd, and allow for The Trade Desk to be transacting 10% of programmatic spend through their platform, and taking 20% of that as revenue, you’re also looking at peak revenue of 20b.
Which of these scenarios is more likely? That’s surely an exercise in speculation. But it’s clear that both companies have the potential to become behemoths.
ROKU absolutely dominates installed base and sales in the US. There may be a number of reasons for the disconnect with MAU numbers, namely Roku’s lack of a substantial international presence. Maybe difference in the way they define MAU.
Darth, I believe international presence is exactly it. ROKU’s OS has a huge lead in US market share. Amazon FireTV has more users at this point. And from what I have read, Amazon and Roku are counting active users in the same manner (don’t know where I read it nor do I have the article handy but they are essentially the same).
Roku only just started investing in international markets. In the company’s fourth-quarter letter to shareholders, management said it’s increasing its international investment this year. While the company doesn’t expect those investments to show any meaningful account growth this year, it says the benefits of those investments will start showing up in 2020 and beyond.
So Roku created a business worth $15 billion just concentrating in US, and just started selling international. What remains to be seen is whether Roku can duplicate it’s huge market share lead in other parts of the world. I’m staying long while this one plays out.
YouTube was pulled from the Fire TV system a while ago. Not sure if it’s still there.
I bought an Amazon Fire TV a year or so ago on Prime Day. I got it for a great price.
It has a variety of apps on it to include YouTube, Netflix, news apps, sports apps and more. I’ve read the various posts on Roku and I recently opened a small position in the company. However, I’m wondering how long I will hold it. I don’t see a moat for them. I do see a huge moat for Amazon and I’m holding the few shares I have. I don’t believe their growth is over yet.
Fool on,
mazske
Long AMZN
So Roku created a business worth $15 billion just concentrating in US, and just started selling international.
International is a market for CTV/OTT ads that still is ripe for hyper growth. Still almost completely untapped. And being that ROKU is almost entirely US and is accelerating ad revenue approaching 100% mark, US is just getting starting too.
End of 2017 data is the most recent I can find.
Pixalate measured worldwide Connected TV/OTT programmatic ad impressions throughout 2017 for this study. The United States easily leads the way, with 85.7% of all Q3 2017 programmatic TV ad impressions being served in that region.
85% up from 75% earlier in 2017. Do we think this trend has changed much?
http://blog.pixalate.com/programmatic-tv-connected-ott-unite…
From same research company different article.
According to Pixalate’s data, Roku dominated the Connected TV/OTT programmatic ad space in 2017.
In January 2017, Roku accounted for over one-third (36.2%) of the space:
By October 2017, Roku had nearly doubled its market share, up to 68.8%
*note that all ads on OTT/CTV are not programmatic, so yet another number to be curious about.
If you overlap this data with that of the other data about dominate and expanding US installed base (where the money has been) and platform revenue (which is mostly advertising) accelerating from 79% in Q1 to 86% in Q2. Seems pretty compelling.
Darth
Bear,
Wanted to follow up after doing some research. Saul, sorry to continue this but hope it adds materially to the discussion.
What do people stream?
From MRQ 10-q:
In the six months ended June 30, 2019 and the year ended December 31, 2018, Netflix and YouTube accounted for more than 50% all hours streamed in each period.
YouTube is NOT paying Roku
From 10-Q:
although YouTube’s free ad-supported channel is the most viewed ad-supported channel and the second most viewed channel overall by hours streamed on our platform for the six months ended June 30, 2019 and the year ended December 31, 2018, we do not receive material revenue from it.
You were correct! It turns out there’s lots of ad-supported choices out there – but they’re far less popular. That said, they’re apparently adding enough incrementally to get the market excited.
Best,
Brian
Wanted to follow up after doing some research. Saul, sorry to continue this but hope it adds materially to the discussion.
Brian, it does! This is why you’re my favorite Fool writer. Well, that and your constant clear writing…which I haven’t seen as much of lately…I wish the Fool would make a better feed so I better could follow the writers I like. Sorry, tangent.
In the six months ended June 30, 2019 and the year ended December 31, 2018, Netflix and YouTube accounted for more than 50% all hours streamed in each period…we do not receive material revenue from [YouTube]. (and I assume Netflix either)
I’m not surprised Netflix and Youtube account for 50%. So that’s $0 revenue on 50% of the hours streamed. It makes it all the more amazing to me that Roku is making $21/year per user! I actually think the ad buyers are getting ripped off. Think about it. Netflix gets what, a little over $100/year per subscriber. $21 for ad supported content is a lot! They’re touting 9.4 billion hours, but half are unrelated to ads.
Makes me nervous more than it makes me interested. But I’m sure others see it differently.
Bear
TWLO – It’s no secret I’ve been questioning the size of my Twilio allocation the last couple of months. This month I finally took action and pared it down considerably. My final steps to get there consisted of two parts. First, I dug into their 7/31 earnings:
stocknovice,
This was a really outstanding portfolio review writeup! I particularly liked how you analyzed each situation and recent business results and linked that back to your decisions.
I have been having similar thoughts to you about TWLO. I had a large 17-18% allocation on TWLO for a while and I also had made a rather large options bet on a stock move to the upside after the past earnings result. It ended up being my largest options loss of 2019 (about a loss of 1.2% of my portfolio value). I didn’t think TWLO’s result was horrible or anything but I was disappointed that they didn’t hit it out of the park like the past 2 earnings. I was hoping that Flex would see more traction and that TWLO would start to see some synergies from their SendGrid acquisition. Also, with Signal 2019 coming up, my options bet was based on seeing a continuation of their recent massive earnings beats and some exciting announcements out of Signal.
Recently, I reduced my TWLO allocation from 16.1% down to 12.1%. One third of the proceeds will be reserved as cash to pay for my capital gains from my TWLO sale. The other 2/3 of the proceeds were used to buy ZS shares to boost my allocation to 13.2%.
I still think TWLO will be a great investment but now I just don’t know how long they will start seeing financial rewards from Flex and the SendGrid cross-selling. The next near-term hope for TWLO may be the spend on TWLO from the 2020 US Presidential Election. Last year, TWLO had a rather large one time revenue benefit from an election in another country. I think we can expect that the spend on the US Presidential Election will dwarf that other election. When will the spending start and for how many quarters will the spending last?
Chris
I’m not surprised Netflix and Youtube account for 50%. So that’s $0 revenue on 50% of the hours streamed. It makes it all the more amazing to me that Roku is making $21/year per user! I actually think the ad buyers are getting ripped off. Think about it. Netflix gets what, a little over $100/year per subscriber. $21 for ad supported content is a lot! They’re touting 9.4 billion hours, but half are unrelated to ads.
Bear,
Do you mean to say ad sellers are being ripped off? Roku is an ad seller. Or is Roku ripping off ad buyers (companies that buy ad inventory on Roku)?