Thinking about Roku

Here are the Facts:

Roku’s Platform Revenue in 2019 was 740 million
The Trade Desk’s total revenue was 661 million

My understanding is that, even though it is growing fast, CTV represents only a small portion of The Trade Desk’s revenue.

And yet, all of Roku’s platform revenue is coming from its connected TV revenue. In other words, Roku is earning more in Connected TV revenue than The Trade Desk’s total revenue, and connected TV is only a small amount of TTD’s revenue. We’re talking maybe an order of magnitude in difference here between The Trade Desk’s CTV revenue and Roku’s platform revenue. Not to mention that The Trade Desk is available across multiple platforms and Roku only has its own.

How is Roku earning so much more? I’ve been thinking about this. These are my thoughts. The Trade Desk is focused on OTT advertisements placed on services such as Hulu that use advertisements in lieu of charging subscription fees. Roku also makes money from this type of advertising. But Roku has other revenue streams that get counted in platform revenue. My best guess is that these other streams are much more lucrative for Roku than OTT advertising.

If this is true, then it is a big deal. Roku and The Trade Desk have both been punished in the sell-off because everyone knows ad budgets are being cut. The biggest advertisers are the companies who have been hit the hardest. But if OTT Advertising is a smaller fraction of Roku’s platform revenue than people think, they can surprise to the upside.

I’ve been listening to a lot of podcasts over the past year, and who advertises on the podcasts I listen to?..Other podcasts! I imagine the same dynamic is happening with Roku. I am guessing that its top clients are not the auto companies, travel companies, and restaurants whose ad budgets everyone is concerned about. I am guessing that its top clients are actually streaming services themselves. And I am putting my money down on my guess that Roku’s home screen is its most valuable property. With so many more people tuning into connected TV during the pandemic, streamers want to capitalize on new subscriptions right now. I am guessing that this segment of advertising is growing rather than shrinking- to Roku’s benefit. This is not to mention the other revenue segments in their platform category, such as commissions on subscriptions bought through the platform. So instead of shrinking as most advertising companies are supposed to, I think Roku’s platform revenue may continue to grow this quarter.

So I’ve put 25% of my portfolio into Roku today. I wish I picked them up at the bottom. If they drop in another big sell-off, I will buy more.

I am currently long Alteryx (45%) DDOG (30%) and Roku (25%). I am up 13% YTD.


BobbyBee your portfolio is just like mine but with different allocations. I also added LVGO so I have another.

My opinion on all this is neither Coronavirus, nor any recession it causes, change the long term trend of cable cutting and shift to connected TV. If anything, just like people being stuck in a house may cause people to watch more Roku, but a recession may cause people to cut costs and drop cable for free or cheap streaming.

I’m not investing based on what companies may do this quarter because that’s what everyone else has already done in the market. That’s why restaurant stocks and Vegas stocks have been hit so hard. That’s why zoom stock is already up so much. What happens next is after coronavirus is gone and what the economy looks like. It’s why SAP can warn their earnings and sales will be down and their stock goes up 5% in the day. It wasn’t a shock to anybody. I fully expect the market to start adjusting to a post coronavirus era as the numbers plateau. So planning around what works well under coronavirus May be a bit behind the curve.


Excellent post BobbyBee…

I would think TTD will also benefit from growing CTV but my money is on Roku.

One other point about Roku - I think they stand to benefit even more with Disney+ challenging Netflix… now you truly have a war among so many heavyweight content delivery services… Roku’s value increases big time for each of them… not to mention a huge number of small / new CTV providers each need to pay ransom to Roku to get access to new subscribers… yes, the home screen should be extremely profitable real estate for Roku.

And with Dataxu acquisition, Roku’s ability to effectively sell adds increases big time…

Remember, both Google and Facebook ad revenue surged exponentially after they bought similar services like Doubleclick and figured out how to really make money… Roku seems to be following that script…

top 4 positions: CRWD, LVGO, DDOG, ROKU


Roku’s Platform Revenue in 2019 was 740 million
The Trade Desk’s total revenue was 661 million

Also Roku’s Platform Revenue grew 78% YoY for the year and 71% in Q4. TTD’s growth rates are about half that, if memory serves. Of course, there’s no need to choose between the two. But I sold TTD because of the slowing growth. That’s not a problem Roku appears to have, even with more of a revenue base. I admit, you’ve got me interested.

In the past I have wondered: Why do several TV makers allow Roku to profit from having its software embedded in their hardware (while other TV brands create their own smart platforms and likely profit from them)?

These are the potential answers I’ve come up with:

  1. By licensing Roku, brands can get Smart TV tech without having to develop it themselves.

  2. Maybe Roku’s brand name is actually a selling point? Could Vizio and others with their own proprietary platforms be losing business to brands that include Roku?

  3. Brands that include Roku don’t have to worry about dealing with and supporting all content providers (Netflix, Hulu, Prime, Disney, etc). In other words they can just focus on selling TVs. For example, I heard that recently Vizio couldn’t support Disney Plus. (This might be fixed now.)

  4. Any proprietary software is by nature fragmented competition for Roku. You could see any brand deciding to go with Roku, but it’s not like you will see Samsung sporting Vizio’s Smartcast3.0. So it pays to be Switzerland – and on content, too, as opposed to Amazon Fire or Google Chromecast, etc.

I can see why Roku would be attractive to TV makers, and perhaps even TV buyers. If TV buyers want Roku included, I feel like they’ve won the streaming wars. If they’re the platform of choice, they’ll be the biggest beneficiary of cord cutting for the next decade.

Obviously I’m talking myself into this company. Anyone else have ideas on Roku?



Bear I’ve been a Roku bull for some time, here’s some interesting numbers to demonstrate Roku’s market position and the reason why TV brands would want Roku and publishers want to be on ROKU.

43% of all gloabal CTV streaming is on Roku, and 25% of all streaming. FireTV #2 at 18%. Samsung at 1%

59% of US Programmatic OTT ads are delivered on a Roku. FireTV 19%.

Some numbers to get you started at least.…



Well you nailed me on this one, I’m sure there are others like me.

Could Vizio and others with their own proprietary platforms be losing business to brands that include Roku?

I’m just one person, so just anecdotal, but I was considering a Vizio or Samsung, but instead went with a brand that had Roku included because most reviews had them ranked as the most user friendly smart TV operating system. I was not a Roku user before, and now I’m looking at getting 2 more Roku streaming stick plus’s for the other TVs in my home or upgrading to a Roku smart TV when I cut the cord and switch to YouTube TV soon.


thanks for these thoughts. I’m at 4% long ROKU but looking to increase at these prices. after the last ER I saw increasing operating expenses. and it’s hard to like a gross margin in the 40%-range when other companies have 80 or 90%

But it seems they are investing for the future to build a competitive advantage

their growth story is international. Most recently in Brazil and the UK with lots and lots of room to grow

This might be wrong, and I would love for someone to correct me, but I think of them as an operating system for television. Like Microsoft on PC in the 80’s/90’s or iOS on iPhone. Except they make money from others who advertise on their OS

1. By licensing Roku, brands can get Smart TV tech without having to develop it themselves.

Yes exactly. Why would tv makers want to make software when they aren’t nearly as good at it? It’s like cars that develop software for inside cars. It’s usually terrible and out-dated within a couple of years. Everyone just uses their phone anyway inside cars for maps and music. Roku is better at it and can update regularly

The platform revenue is where it’s at. Higher revenue growth (78% yoy on last ER) and better margins (GM of 62.5% and guided to level at high 50’s to low 60’s). Overall, they break even to build the boxes, but that’s how they initially drew people in. Now, if they can instead come as the native OS on tv’s then people will use them intuitively.

Also they bought dataxu to compete with TTD


Having owned it since last May, I might have a thing or two to say about Roku. :smiley:

It’s been quite the roller coaster ride and a tough 2020, but I’m still on board. I’ve commented on it in every recap and included them all below. I’d recommend checking out a lot of the links, especially coming off my August recap. That 55-post thread was mostly about Roku, and most of it still applies. My main take in that thread is here:….

All that being said, I can’t hold a candle to the work Darth has done on Roku (many of my links are to his info). Any search for Darth/Roku on this board is almost certainly worth a read. One point I’d make that I don’t believe has been referenced yet is Roku is the OS for roughly 1/3 of ALL smart TV’s sold in the US during 2019. They’ve now started to branch out into other countries as well. Given all the streaming happening in the world right now, I’m really curious to see next month’s report.

May 2019 – A new purchase. Roku has put itself smack dab in the middle of the seemingly unstoppable transition from linear TV to digital streaming. The platform and customer base they have spent the last decade building is ready-made for content providers looking to reach an ever-growing digital audience. A brief discussion of some of their numbers was posted in this thread started by SoonerAJ:…. My key takeaway after breaking them down is that Roku has evolved from a fancy cable box maker into a legitimate advertising platform with the potential to be the operating system for the majority of smart TV’s. The company’s higher margin Platform business – ads, smart TV OS licenses, and fees from its aggregator Roku Channel – is accelerating and becoming an ever larger percentage of total revenues:

Platform Revenue					% YoY						
	Q1	Q2	Q3	Q4	YR			Q1	Q2	Q3	Q4	YR
2017	$36.42	$45.98	$57.53	$85.44	$225.36		2017	 	 	 	 	 
2018	$75.08	$90.34	$100.05	$151.40	$416.86		2018	106.2%	96.5%	73.9%	77.2%	85.0%
2019	$134.15	 	 	 	 		2019	78.7%	 	 	 	 
Platform Rev % Total					Platform Gross Margin			
	Q1	Q2	Q3	Q4	YR			Q1	Q2	Q3	Q4	YR
2017	36.4%	46.1%	46.1%	45.4%	43.9%		2017	77.1%	74.4%	77.3%	74.6%	75.7%
2018	55.0%	57.6%	57.7%	54.9%	56.1%		2018	71.1%	69.8%	70.5%	72.2%	71.1%
2019	64.9%	 	 	 	 		2019	69.9%	 	 	 	 

At the same time, their customer base grows steadily and the time spent on their platform is exploding:

Active Accounts (millions)				% YoY						
	Q1	Q2	Q3	Q4	YR			Q1	Q2	Q3	Q4	YR
2017	14.2	15.1	16.7	19.3	 		2017	 	 	 	 	 
2018	20.8	22.0	23.8	27.1	 		2018	46.5%	45.7%	42.5%	40.4%	 
2019	29.1	 	 	 	 		2019	39.9%	 	 	 	 
Streaming Hours (billions)				% YoY						
	Q1	Q2	Q3	Q4	YR			Q1	Q2	Q3	Q4	YR
2017	3.3	3.5	3.8	4.3	14.9		2017	 	 	 	 	 
2018	5.1	5.5	6.2	7.3	24.1		2018	54.5%	57.1%	63.2%	69.8%	61.7%
2019	8.9	 	 	 	8.9		2019	74.5%	 	 	 	 

Roku’s self-described “strategy of trading player margin for account growth and platform revenue growth” appears to be paying off in spades. With 1-in-3 new smart TV’s running Roku’s operating system, they’ve passed Samsung as the #1 OS in the US. In addition, they’ve established a presence in 20 different countries. While they don’t expect any international contributions until 2020, their belief is the entire world will eventually move in the direction of digital consumption. That’s a whole lotta TAM goin’ on.

June – Roku briefly passed the $100 mark to set new all-time highs. It took a late dive when AMZN announced a two-day sale on its smart TV offering, but I personally view this more as FUD than any change in fundamentals or foreseeable business prospects. I might have considered adding if my allocation wasn’t already in my targeted range and everything else hadn’t dipped right alongside it. I don’t need to be a techie to understand that some people still dig watching TV and will likely access more and more of it through streaming platforms as we go. ROKU has put itself firmly at the forefront of that transition. I’m willing to let this story continue to play out.

July – I used some SHOP cash to nudge my Roku allocation ~.5% after a 15% decline due mainly to AMZN announcing a sale on its own featured smart-TV. Since Amazon wasn’t touting a new product but instead discounting a pre-existing one that hadn’t affected ROKU much previously, I viewed this as mostly FUD and added a smidge at $91.90 on 7/2. I originally decided against this purchase since I was already in my 5-7% allocation zone but changed my mind after I viewed the discount as too attractive to pass up and Roku touched the bottom of that range.

We’ve now experienced a couple instances where an Amazon announcement causes one of our holdings to temporarily dip before bouncing back to challenge new highs. January’s MDB wobble is probably the most notable example. AMZN’s Open Distro gambit against ESTC appears to be ending that way as well. I’m fully aware that a handful of cases does not indicate a trend, but ROKU’s price has thus far followed a similar path by rebounding 14.1% since July 1 while touching new highs along the way. While I’m glad the opportunity to buy the dip has worked out thus far, I view Roku’s August 7 earnings as a MUCH more important indication of its future. Stay tuned…

August – Roku reported on 8/7 and I thought they knocked it out of the park. Revenue growth accelerated to its highest level since their 2017 IPO. The last four quarters are now 38.9%, 46.5%, 51.3% and 59.5%. Even more impressive, growth in their higher margin platform revenues has trended the same way – 73.9%, 77.2%, 78.7% and 85.6%. GAAP margins remain slightly negative as they focus on growth, but Adjusted EBITDA has now been positive for 5 consecutive quarters. Roku now has 30.5 million active accounts (+38.6%) that collectively streamed 9.4 billion hours (+70.9%) last quarter. The company is clearly finding ways to monetize those hours as average revenue per user jumped $2.00 sequentially to $21.06. In addition, the company highlighted the following in their shareholder letter:

  • Roku is the #1 streaming platform in the US by hours.
  • Roku’s operating system powers 41 million devices and smart TV’s in the US. This is 36% greater than their closest competitor and is expected to grow.
  • Roku owns 39% of the US streaming media player installed base as of 1Q19.
  • Roku’s operating system powers more than 1-in-3 smart TV’s sold in the US during the first half of 2019.

In a nutshell, Roku appears to be delivering in spades. The company is out in front of a huge shift in the way viewers consume TV, and its rapid growth doesn’t look like it will slow any time soon. This recent thread contains a pretty good description of what’s going on:…. As for the stock, I was able to grab some at $105.50 immediately after earnings, then added a couple more lots over the next few days. At the time those buys put Roku just below my target allocation of 9-12%. It has now solidly appreciated into that range. I really like what Roku is doing and can’t see myself exiting any time soon. Given the numbers, I’m mildly surprised more here don’t own it and would be curious to hear why others have chosen to pass. What is it that’s keeping you away?

September – September (-32.8%) was a brutal month for ROKU after a ridiculously stellar August (+46.5%) that pretty much carried my portfolio. Being honest, the run from ~$100 on 8/7 to ~$170 on 9/6 was almost certain to elicit a pullback. As with any stock experiencing a similar burst, the question is always where the price finally settles. Unfortunately, in this case it settled just about where it started. Congratulations to anyone who was able to successfully trade in this window. I simply chose to ride it out since 1) I believe in the company longer term and 2) my ability to time the market has repeatedly proven to be terrible over the years.

Price action aside, there was quite a bit of news to digest during September. The first was an announcement that Roku has expanded its TV licensing program to Europe with Hisense as its initial European TV partner (… and…). Hisense was one of Roku’s early North American partners, so this seems like a natural expansion of an already successful relationship. The first Hisense/Roku TV’s will hit showroom floors in the UK during Q4.

The next pronouncements were the release of new and updated hardware. Early in the month Roku released a smart soundbar and wireless subwoofer that are both embedded with Roku’s platform (…). Mid-month the company released its refreshed lineup of Roku players and OS for smart TV’s. The pessimist in me sees this as a further expansion into hardware, which I’m lukewarm about. The optimist in me sees yet more avenues for viewers to easily access Roku’s platform, and as luck would have it just in time for the holiday shopping season! The pragmatist in me – who I always try to heed most often – is perfectly content to stick around to see how things shake out as Roku aggressively pursues what it clearly sees as opportunities for continued growth.

The third bit of news was AAPL’s unveiling of pricing for its Apple TV+ product. This led an already skittish market to dump pretty much every stock associated with streaming in any way. Frankly, Apple’s forays into these types of services never quite seem to pan out the way they’d like, so I’d say there was considerable FUD in the market’s reaction. It’s not like Apple created a new device to compete against Roku, and its own release said “The Apple TV app…will come to Amazon Fire TV, LG, Roku, Sony and VIZIO platforms in the future.” So Apple basically stated it was releasing a new service for a pre-existing app and one of the main ways to access that service is through Roku. Isn’t that what we want? I see nothing wrong with letting everybody else split up the content pie while Roku serves as the aggregating platform that pulls it all back together for easy access by consumers. The market reaction reminded me of the dip a couple months ago on AMZN’s smart TV flash sale, which turned out to be a great buying opportunity. I thought ROKU’s 10% haircut on the Apple news was a bit excessive, so I added about ~1% more at that level.

The final volley was Comcast and Facebook both releasing streaming options to existing customers on 9/18. This is the one that started the real hit to Roku’s stock. Comcast is offering its internet-only customers – a quick search turned up ~27.6M of them – a free first OTT box with a monthly charge for any additional boxes. Given those customers must rent Comcast’s modem to qualify and can only outfit one TV without seeing their bill increase even more, I can’t see this being a game changer. Facebook’s offering will be $149 and have streaming capabilities as well. As with the Apple announcement I’m not surprised others want a piece of the rapidly growing streaming market, but I don’t view either of these moves as disrupting Roku’s short-term prospects or overall business given Roku’s continued advantage of being a neutral platform in the streaming arms race. Sadly, my lack of time travel skills prevented me from cancelling my purchase on the AAPL dip so I could take advantage of this one instead. I believe those who added here will eventually be rewarded (although you’re on your own if it turns out I don’t know my ass from my elbow).

My sincere thanks to everyone who chimed in on ROKU after last month’s write up. This recent thread is useful as well:…. And a special shout out to Darth for an excellent post on the state of the overall streaming market (…) along with a list of the current best-selling TV’s on Amazon (…). [Spoiler alert: Roku dominates in both links.] Darth’s been on an extremely informative Roku tear the last few weeks.

After some pretty lively discussion, I remain convicted in my Roku thesis. I also better understand the bear case, which is always helpful and should not be underestimated. For now I will continue to hold Roku as a healthy part of my portfolio, though I’m guessing that’s easier for me than some others since a large number of my shares still sit in the green despite the recent pounding. At the same time I’ll be watching the next couple of quarters closely to make sure the expanding competition isn’t hurting Roku’s margins or prospects for future growth. This is a case where I’m not trying to overthink things. I’m intent on owning the company until the growth and platform revenue numbers tell me it’s not worth following any longer.


Whoa. This is the exact opposite of drama-free. The stock’s exhilarating August (+46.5%) and vomit-inducing September (-32.8%) have now been followed by a thrilling +44.7% October. That means Roku has basically carried my portfolio for two of the last three months and has now leapt to my top spot as a result. While the company’s November 6 earnings should no doubt be interesting, those results are likely just a prelude for what has traditionally been HUGE seasonality during the Q4 holiday season. That’s when we should really see just how well Roku has positioned itself as the default OS and viewing platform for the ever-increasing number of eyeballs migrating to streaming TV. For those who have dared to enter this ride, please check your safety bar and remember to keep your arms and legs inside the car at all times. The rider assumes all risks and no refunds will be given.

November – Face it people, ROKU is a volatile little scamp. The company reported good numbers on 11/6 with small beats in several areas and a FY raise. Active accounts and streaming hours continue to climb, with Roku now serving 32.3M users who spent 10.3 billion hours on their platform last quarter. Average revenue per user (ARPU) climbed sequentially from $21.06 to $22.58 and ARPU growth accelerated to +30.2% YoY. This tells me they are clearly finding ways to monetize their eyeballs. Operating expenses climbed a tick, but they do not appear to be overpaying for the growth they are creating. And despite guiding all year toward breakeven EBITDA they are likely to end up closer to +$35M when all is said and done. On the whole I believe Roku continues to deliver on its promises with plenty of room to continue outperforming.

Unfortunately, a finicky market for highfliers didn’t seem to immediately share my opinion. The stock dropped ~15% after hours, which wasn’t a shock to me considering the smoking hot ~40% rise the month or so leading into the report. I’m also not surprised it has rebounded quite nicely as the news has settled in, even with Roku announcing a very small secondary offering mid-month to help cover a recent acquisition. I’m perfectly happy with the results and believe Roku has lined itself up well heading into its seasonally large Q4. Ultimately, their stated plan of “trading player margin for account growth and platform revenue growth” appears to be very much on track, and a strong holiday season in smart TV and/or player sales could fuel continued hyper growth in platform revenues during 2020. Their recent release of Roku TV’s in the UK should help in that regard (…). A reasonable Q4 beat would have Roku exiting 2019 as a 50%+ overall grower with >$1.1B in revenues and plenty of tailwinds behind it. I trimmed ~.5% just before earnings while rebalancing accounts after last month’s TWLO sale, but have no problem keeping the remaining shares as one of my largest positions.

December – I used my regular monthly contribution to add a teeny amount when Roku opened December down ~15% on a Morgan Stanley downgrade with a $110 target. Of course, a Needham analyst sent the stock up the very next day with an upgrade that included a Street-high target of $200. That’s quite a difference of opinion. I’m siding with Needham on this one since I make a point of never trusting anyone with two first names (my apologies to everyone out there with two first names). Here’s hoping the bulk of this holiday’s smart-TV upgrades end up powered by Roku’s OS.

January – Roku kicked off the year with three interesting pieces of news. The first was an announcement that 15 brands will be rolling out Roku-powered TV’s in the US, UK, Mexico and Canada during 2020 (…). Those brands now include ATVIO, Element, Hisense, Hitachi, InFocus, JVC, Magnavox, onn., Philips, Polaroid, RCA, Sanyo, TCL and Westinghouse. The second was a release detailing a new verification program which “allows third-party consumer electronics products to work seamlessly with Roku TV’s” (…). These products will be specifically labelled “Roku TV Ready” on packaging and marketing materials to identify they are certified to work with Roku’s operating system. This will “make it super easy to setup and control soundbars and audio/video receivers using just a Roku TV remote”. Finally, the company expanded its long-awaited international push by debuting its platform in Brazil (…). This includes an OS deal with TV manufacturer AOC as well as a content partnership with Globoplay, Brazil’s largest streaming service. This deal potentially benefits all involved, and Globoplay will be prominently featured with a shortcut button on Brazilian Roku remotes in the coming months. I like this move and view local partners as a smart, measured way to increase the odds of a successful rollout.

Unfortunately, these positives were overshadowed by a piece of negative news just this morning. It appears Roku and Fox are in a contract dispute which caused Fox’s apps to be removed from Roku just two days before the Super Bowl (…). Even though both companies supplied alternatives for accessing the game, it’s not a good look for either before such a premier event. While fee disputes between carriers and content providers are fairly common in the cable world, this looks like the first major disagreement of the streaming era. Considering the unrelenting shift of viewers from cable to streaming, it almost certainly won’t be the last. As with most of these squabbles I’d expect an eventual resolution reestablishing the partnership. In the meantime, I view this drop as FUD and nibbled at another ~0.4% this afternoon. Welcome to the big leagues, Roku. Please be smart and don’t overplay your hand.

The end-of-month stumble notwithstanding, I view the earlier pronouncements as excellent examples of Roku’s burgeoning popularity. The company is continually finding innovative ways to worm into more and more home entertainment systems. In addition, these releases suggest third parties are becoming quite eager to access Roku’s platform and customer base. The more the merrier as far as I’m concerned. Despite the stock zigging down 9.7% this month while literally everything else I own zagged higher, I have no reason to think the overall business or thesis has faltered. Roku’s 2/13 report on their traditionally large Q4 should go a long way toward clarifying just how well-positioned they are for continued success. I plan on holding tight at least until then.

February – And the volatility continues. After being my only market-trailing stock in January, Roku charged out of the February gate. It surged right away when Roku settled its Fox dispute and then continued to climb into midmonth. While the Fox agreement was certainly a welcome (and anticipated) development, I viewed it as nothing more than a prelude to a pretty significant earnings report on 2/13. The company spent most of 2019 very aggressively expanding its viewing platform and OS footprint. This report would shed some initial light on just how well those efforts had positioned the company for 2020 and beyond.

I personally thought things looked pretty good. Roku posted 49.1% total revenue growth with its higher-margin platform growth coming in at 71.5%. For FY19 those rates finished at 52.0% and 77.7%, respectively. Active accounts (+36%), streaming hours (+60%) and average revenue per user (+29%) all continue to grow at strong rates. Platform as a percentage of revenues has increased from 43.9% to 56.1% to 65.6% the last 3 years and is expected to be ~75% for 2020. Roku not only ended 2019 with its OS in roughly 1/3 of US smart TV purchases but also laid the groundwork for additional expansion into North America, Europe and Brazil. The call was confident, and I didn’t sense any unanticipated headwinds on the horizon. Finally, Roku’s top-end 50% Q1 revenue guide would mean sequential acceleration, and even a moderate beat would also be YoY acceleration vs 1Q19’s 51.3%. Accelerating 50%+ growth coming off a $1.13B revenue year? Sounds good to me.

Unfortunately, the market didn’t share my enthusiasm for very long. The stock initially spiked up ~8% at the open ( wistful sigh ) before crashing down to finish the day at -6.5%. And Roku’s been stuck in the mud ever since. The decline was apparently spurred by analyst concerns about the below consensus FY20 guide for breakeven EBITDA and GAAP losses, due mostly to integration of the dataxu acquisition. As a reminder, this is the very same EBITDA guide they made for most of FY19 before finishing at +$36M. Management has been very explicit about their growth intentions, and the returns have been positive so far. They state they are “well positioned for the new streaming decade”, and I can’t really argue that point. Given the guide and underlying metrics, it’s not hard for me to picture strong revenues and positive EBITDA in 2020…

…but what I see is only part of the puzzle. Despite believing Roku has an excellent plan, I must admit disappointment in the post-earnings action. The early month climb and initial earnings pop made sense to me (ownership bias maybe? The subsequent action has not. That’s led to a bit of a gut check. While Roku’s been a profitable buy, I can’t ignore most of my position has basically been dead money for six months while trailing the market significantly. At some point that means something. Not because I’ve soured on the business, but because holding such a condensed number of stocks really highlights the effect of opportunity cost for any “wait it out” portion of your portfolio ( I’m all for Roku’s continued expansion, and in theory their shift to maximizing platform revenues and ARPU should have some coiled spring effect once it kicks in. It obviously didn’t with this quarter’s earnings, so the challenge becomes determining the acceptable hold time and allocation for a stock that might stagnate further while I await signs of the payoff.

Being brutally honest with myself, I’ve previously found ways to trust NTNX, SQ, TWLO and ESTC’s numbers a little too long even though the market was telling me otherwise. Simply put, I don’t need to fight city hall when there are other options available. After all, I’m not here to prove the market wrong. My only goal is maximizing returns. Given that, I’m beginning to question how committed I am to ~10% of my portfolio potentially drifting for another quarter at least. I can’t see myself abandoning Roku since I still like the business very much, but it does enter March as a candidate for a lower allocation depending on my remaining earnings results.

March – There’s simply no sugar coating it. After being a portfolio standout through Fall 2019, Roku’s been a serious drag since. I spent most of February trying to figure out why since I thought earnings were fine and the overall thesis remains intact. In early March the price finally reached a point where I felt the market began to throw out Roku’s platform baby with the hardware bathwater. I think some of the initial hit was supply chain concerns for Roku TV’s and sticks, then it was compounded by concerns over ad sales. I also believe their international expansion might take a slight pause given the current climate. However, TV’s and Roku sticks are not where the money lies. They are just the gateways to eyeballs. Ads will decrease but won’t disappear, and streaming hours are very likely to skyrocket. Ad impressions through The Roku Channel should surge as well. I shook the couch cushions to add a tiny 0.1% in my taxable account when the stock dropped below $80. I know others have added as well. Despite Roku’s terrible YTD, I can’t see how there’s not room for considerable upside from these levels. With the shares this beaten down I see no harm in holding through early May’s earnings and reassessing. I’d expect some rebound with an even moderately optimistic outlook. If not, it’s likely time to move on. Hopefully people won’t decide to stop streaming television while they are on lock down between now and then. :smirk:

My current April draft – The big news in April was Roku continuing its UK expansion with the British release of The Roku Channel (…). Like the US, the channel is free to viewers and supported by ads. The UK version features “10.000+ free movies, TV episodes and documentaries [including] a selection of popular global and British TV series” geared toward the local audience. I’m speculating a bit here, but Roku must have sensed a big enough audience and enough interest in their British ad inventory to proceed with the launch.

Maybe I’m just being stubborn, but I’ve held steady with my shares. The current global lockdown should only accelerate the move to digital media. Ad dollars eventually go where the eyes are, and right now the eyes are on streaming. Roku’s platform gives it optionality that TTD lacks while waiting for things to play out. I believe Roku is positioned to withstand the temporary decline in ad spending and come out stronger on the other side. My first chance to test that theory will be when Roku reports on XX. As stated last month I think even mildly optimistic news could portend a rebound. If nothing else, it should stop the recent bleeding and set some sort of base. I’ve got my fine-toothed comb ready for whatever info comes my way.


I believe Roku is positioned to withstand the temporary decline in ad spending and come out stronger on the other side. My first chance to test that theory will be when Roku reports on XX. As stated last month I think even mildly optimistic news could portend a rebound. If nothing else, it should stop the recent bleeding and set some sort of base.

Under the current global lockdown 2 billion people have nothing to do except sit at home and watch TV. I haven’t owned a TV for the 11 years I have been living in Singapore, but fortunately got a decent hand me down offered to me in February which together with a set top box purchase has turned into a lifesaver under the current “circuit breaker” aka lockdown here.

I didn’t own Roku until this last month but had it was always on my watchlist, (I do hold a decent position in TTD). I took advantage of the 50% drop to buy into Roku which is growing 2x the rate of TTD. I’m happy to buy into the de facto Connected TV operating system player. Since the bounce back from the recent lows, Roku is still probably the best value out there.



I think the term “streaming wars” is a bit misleading. If you are talking about streaming services like Netflix, Amazon Prime, Hulu, Disney+, etc. it’s not a streaming war, it’s the war on legacy TV; old content providers try to salvage their business model as best as possible to compete with Netflix. In this war, legacy companies are hugely disadvantaged to Netflix (dual business model vs. single focus, late entry, worse product, no streaming brand, worse/no algos (no data), way slower production capabilities, lesser scale, i.e. relatively less budget to spend on original content, not the same appeal for human capital, worse top management,…).

ROKU is a smart play because it doesn’t really compete with those mentioned above. It’s basically a prerequisite for their business model that they don’t compete with the content providers and stay neutral – that’s why Netflix spun it off as an independent company so everyone would gladly work with them. Maybe there is a “streaming device war” but in reality I don’t think that’s the case. At the end of the day Amazon, Google and Apple don’t care too much about how many of their streaming sticks or boxes they sell (they will be sold at very low to slightly negative gross margin anyways; probably Apple makes money on them, but that’s not the point). They are also happy if you enter their ecosystem through a ROKU-device and gladly pay the fee to ROKU. What they really want is to hook customers into their ecosystems where the real margins are.

That’s why I think you shouldn’t get too excited about ROKU’s market share in streaming devices because it doesn’t mean much. The question is really how much they can monetize the ecosystem they are building. Certainly, the Amazons and Apples of the world have ample opportunity to do that. But does ROKU?

ROKU understands that they won’t make money from selling their devices and it’s great that they are trying to build that monetization platform via ads and app-signup fees. However, I often wonder how much potential for monetization there is really. I remember a couple of years back there was a lot of talk about how Apple should make their own TVs and try to dominate the “OS of TV”. The idea was that since people spend so much time at home and TVs are getting smarter, TVs could be used differently in the future, kind of like the media center of the home. Thus, there would be a huge potential for the company that can establish itself as the OS of TV. However, that never really played out. Think about it: How do you use your TV? You watch movies, play games on a console and maybe listen to music if it is hooked up to a good stereo. But that’s it. The masses never adopted TVs as a platform to do other stuff and thus the big tech companies – rightly so – didn’t really go there (other than to try to bring customers into their ecosystems).

The main value provided to consumers through TV’s is entertainment in the form of viewing and gaming. It is quite clear to me, that the most value in terms of margins will therefore come to the company that owns the “best” entertainment and the largest audience. Today, that’s clearly Netflix and the way things are going it is difficult to see that changing. That’s why I expect them to extract the most profits from that huge global TV-entertainment market in the long term.

Where will ROKU extract value? Actually, it’s a smart idea and super interesting investment thesis. Basically, ROKU and its investors are saying: “Why should we compete for the best entertainment? That’s a loser’s game. All those streaming platforms will continue to overpay for content and never make a profit! No, we are just going to sit in front of all of them and collect a fee for every user that passes through. No matter who has the best show/movie, we are always winning! As an aside we will also pick up some left-over content that is cheap (because most money goes to the big titles) and show it to users on an ad basis. Maybe this will even get a thing on its own! ” As I said, that sounds really smart, and is a nice narrative; but you really have to ask yourself how much value can be extracted from being the ferryman to streaming in the long term. And you also have to question (as mentioned above) if there is actually a “streaming war” – in my opinion Netflix has won this “war” a long time ago and what we are hearing about new “Netflix-killers” for the past one or two years is mostly noise.

But returning to extracting value through ads and fees, just think about it this way: On Facebook and Google people spend hours on the screen browsing and scrolling, being exposed to ads constantly. Also, Facebook and Google have great targeting techniques that make their ads very valuable to advertisers. That’s a multibillion business that is only getting larger. Amazing! Compare that to ROKU: One of the most comments I hear from users/investors of ROKU is “I have never clicked or acted on one of their ads, so I don’t know how much I contribute, but they sure make a lot of money from advertising!” It just doesn’t make a lot of sense to me that they will make a lot of money from being the search-engine of streaming.

And that’s also a huge frustration as ROKU shareholder: They simply won’t say how much they are making from signup-fees (from third party apps like Netflix or Disney+) and how much they are making from advertising; while clearly they are suggesting that advertising is the big thing (ARPU and total numbers of streaming hours being the two main key figures in their reports). My suspicion is that they are making a lot of money right now from sign-up fees from the various streaming services that have launched. And that will continue for the foreseeable future. I’m just not sure if their ad-business alone, which has to carry the company in the long term, has as much potential as they tout.

Of course, they could have big ad-revenue if ROKU channel becomes a thing. However, if they go too much into content they could potentially bite the hand that feeds them by upset their streaming platform partners. And doesn’t that also defeat their strategy as being the independent platform? Also I think there is a certain trade-off between advertising and having good usability for consumers. If ROKU is chasing monetization too much it could hurt or destroy the very value they tried to provide in the first place. Also, a bit unrelated, what’s going on with their gross margins? (72.2% in Q4 2018 to 62.5% in Q4 2019) How much lower will it go?

So these are my thoughts/concerns about ROKU. Way longer than intended but I would love to hear from you what you all think (especially Darth, Bear and stocknovice). Btw, I hold a small try-out position in ROKU because there are certainly some things that I like about them and they clearly have secular growth trends behind them (didn’t see that coming, did you? ;)). I also have a big position in Netflix for many years (more obvious…).

Happy Easter to everyone and stay safe!


One of the most comments I hear from users/investors of ROKU is “I have never clicked or acted on one of their ads, so I don’t know how much I contribute, but they sure make a lot of money from advertising!” …And that’s also a huge frustration as ROKU shareholder: They simply won’t say how much they are making from signup-fees (from third party apps like Netflix or Disney+) and how much they are making from advertising; while clearly they are suggesting that advertising is the big thing.

Yes this is frustrating to say the least.

if they go too much into content they could potentially bite the hand that feeds them by upset their streaming platform partners. …Also I think there is a certain trade-off between advertising and having good usability for consumers. If ROKU is chasing monetization too much it could hurt or destroy the very value they tried to provide in the first place.

These “what-ifs” strike me as over-thinking it. There’s no evidence that Roku is “chasing monetization too much” or that their platform partners are threatened. Don’t invent things to worry about.

My suspicion is that they are making a lot of money right now from sign-up fees from the various streaming services that have launched. And that will continue for the foreseeable future. I’m just not sure if their ad-business alone, which has to carry the company in the long term, has as much potential as they tout.

This is a great point, in my opinion. I’m not sure what to do with it. I think it could actually be a huge boon for them short term, but yeah, it won’t carry them forever. Unless it’s not just one time sign-up fees. They talk about agreements they’re making with content providers. What do we know about the agreements? Well this gibberish from the CFO didn’t help me:

In general, our content distribution agreements are multiple element arrangements. Certainly, for us, by the services our traditional structure is a rev share, but there’s often other components of that be it minimum guarantees or promotions that we might give. As a result, the material agreements under 606 come under the multiple element arrangement accounting.

So, it really just depends in terms of the different elements, the value that we’ve described for these elements, and then the performance obligations that are basically put against these revenue streams. And so, that can lead to some lumpiness within the life of the deal where we’re valuing the entire agreement and placing value on that.

…but the Needham analyst he was talking to kept a $200 price target on Roku and continues to be really positive, seeing upside for Roku everywhere:…

Elsewhere the CFO said: our business models are set up so that when partners create value on our platform, we’re well positioned to bring them a large audience and best in class tools that can create value and we can share in that.

So I’ll leave you with a question or two:

Do you think there’s any way we can evaluate how well they’re set up to “share in” the value content providers are getting from streaming on Roku?

Or do we just have to hope Roku management knows what they’re doing?



Here’s a good Fool article on Roku including a little more from the Needham analyst (Laura Martin):…


[Martin] “In 2020, Roku’s key upside valuation driver will be accelerating subscription SVOD revenues, which lowers investment risk, we believe,” the analyst wrote in a research note to investors. “Additionally, Disney+, Apple+, Peacock/[Comcast] and HBOMax/AT&T should accelerate customer acquisition spending, and Roku is a key beneficiary owing to its installed base of 32 [million] US connected-TV homes.” So Niki, she agrees with you about the sign-ups but sees it as a positive.

Needham compares Roku to other content aggregator platforms like Alphabet’s YouTube or Apple’s iOS, suggesting that Roku will ultimately become the “winning aggregator of TV and films” in the same way that YouTube is the dominant tech platform for user-generated videos. So she agrees with me they’ll win “the streaming wars.” (I realize I should have resisted my temptation to re-appropriate this term. It was confusing. My bad.)

The author of the Fool piece, Evan Niu, answers your gross margin question: It’s worth noting that Roku is new to selling premium subscriptions; the company only started offering third-party subscriptions in January. Roku has been coy about sharing many granular details around the growing premium subscription business but does note that premium subscriptions carry lower gross margin than other parts of the platform segment.

He ends with another quote from Martin: The analyst adds, “Any OTT service trying to get new subscribers (or viewers to watch their free content) must spend more ad dollars on Roku or risk ignoring 40% of connected TV homes that their competitors are reaching.”

Our board’s own buyandholdisdead talked to TTD’s Investor Relations about Roku last Fall, and they seem to agree – TTD likes and believes in Roku.…



Good stuff, Bear. Diablito wrote this:

Also, a bit unrelated, what’s going on with their gross margins? (72.2% in Q4 2018 to 62.5% in Q4 2019) How much lower will it go?

Platform gross margins come mostly from ad revenues they control along with commissions for any channel subscriptions managed through their platform. Roku recently tweaked its ad model by acquiring programmatic ad firm dataxu (…). Prior to that purchase most Roku ads were sold direct. Adding dataxu’s platform will let Roku clients automate buys themselves and better measure outcomes. Overall platform margins are ultimately determined by how this mix plays out. This is their Q4 comment for the upcoming year:

”The mix of revenue will continue to move toward the faster-growing platform segment, which we anticipate will generate roughly three-fourths of total revenues. For modeling purposes, you should plan for full year platform gross margin in the high 50s to 60% as a percentage of revenue driven by continued mix shift to video advertising, the inclusion of dataxu and growth of premium subscriptions. For players, you should expect us to manage full-year gross margin to roughly 0.’

Even with this decrease, overall gross margins should increase as platform revenues become a higher percentage of total revenues. For all intents and purposes, they are turning hardware revenue into a pass-through venture. Platform revenues as a percentage of total have increased from 43.9% to 56.1% to 65.6% the last three years. Management says it should be close to 75% this year:

”The mix of revenue will continue to move toward the faster-growing platform segment, which we anticipate will generate roughly three-fourths of total revenues. “

Roku is trying to become the world’s #1 digital content aggregator. Any hardware or Roku Channel efforts are meant as nothing more than gateways to increasing the number of platform users. Despite the choppiness of the stock, nothing I’ve seen suggests the company isn’t laser-focused on that result.


Our board’s own buyandholdisdead talked to TTD’s Investor Relations about Roku last Fall, and they seem to agree – TTD likes and believes in Roku.…

Bear, that thesis changed a good period after ROKU’s acquisition of dataxu. More recently, Jeff Green has called ROKU out ---- as ROKU has their own inventory to position.

Also, I don’t fully agree w the thesis that ROKU doesn’t generate a significant percentage of Platform revenue from their ad business. With all the available streamers on the platform ---- and the amount of streaming hours at all time highs and more recent streamers likely getting more favorable terms to ROKU…that is the rub/opportunity that ROKU is capitalizing on. Think of the recent bickering that has happened between ROKU/AT&T. ROKU now is in the position to push back hard on the streaming apps ---- in a way they couldn’t do in early days (with YouTube as one example).

Look, ROKU is my largest negative on my portfolio ---- but I see this as a long term winner. Rough start to the year for ROKU. I own both TTD and ROKU ---- and like them both for different reasons.


Roku is trying to become the world’s #1 digital content aggregator. Any hardware or Roku Channel efforts are meant as nothing more than gateways to increasing the number of platform users. Despite the choppiness of the stock, nothing I’ve seen suggests the company isn’t laser-focused on that result.

From a high-level, this is their goal and they can achieve it b/c Amazon, Apple, et al, will engage in turf wars with each other. Roku is Switzerland and can collect tolls

But as has been pointed out, is it actually profitable in the long-term to be the #1 digital aggregator?

for me, also from a high-level existential view, is do I want to own a company with 40% gross margins when other companies have 70, 80, 90. Do the lower gross margins equate to a profitable moat over time?

thanks to everyone for the great notes


There’s always some questions about the business model and the deals with publishers and stuff and why gross margins have been contracting.

Revisit the earnings call from Q2, they did a good job explaining it. They don’t get paid by the individual subscriber on an ongoing basis. They enter into deals with SVOD customers for distribution based on estimated value of the subscribers. So say Hulu(all hypothetical number) estimates they will gain 1M subscribers over a two year deal and those subscribers will generate $x.xB in subscription revenue during that time period. Roku and Hulu agree on some % of that revenue amount and Hulu pays Roku that amount at deal closing plus whatever other services and promotions they wrap up in the deal. There is performance obligations and triggers in the deal. So say Roku signs up the 1M subscribers over the first year instead of 2. That would generate significantly more revenue during that 2 year period so the deal is reworked using updated metrics and Hulu pays Roku the updated amount or they work another deal or whatever they do.

Roku doesn’t give the deal value details not just for confidentiality with the publishers but also because they are constantly evolving. This is done on a constant basis, like quarterly or something

Hi, this is Steve. I’ll take the first question on the content distribution agreement. Yes, just as a reminder, each quarter, we value the major agreements that we have, they’re multiple element agreements and we have few models where we have certain assumptions related to those. And we are valuing the whole deal value, say, in a two- or three-year deal.

As a result, to the extent that we have positive performance trends and we have confidence that we have visibility into the those potentially continuing, then that will increase the value of the deal over time. And when the deal value increases, then that incremental revenue is recognized in that quarter, which can lead to a comment we also made where on a quarter-to-quarter basis, those revenues related to content distribution agreements can be lumpy. And so that was the situation we had this quarter. And so we had a greater-than-expected revenue recognition in there and the deal value in some of our deals went up, which is a great trend.

But again, can be lumpy quarter to quarter in terms of how it gets recognized.

Gross margin impact. I believe this has a lot to do with Roku Channel. Within Roku Channel for premium subscriptions like HBO, Roku acts as the reseller similar to a cable bundled. They recognize the fee as gross and pay HBO as COGs minus what is owed Roku. Slightly different dynamic. I’ll let them explain that, I believe there is a similar dynamic with Ad revenue inside of Roku Channel for AVOD content not licensed by Roku.

Hey, Laura, it’s Steve. Let me hit the rev rec question. So without talking about any particular deal, there’s two – for SVOD services, there’s two types of ways to recognize the revenue. If it’s in the subscription services app and it’s part of a multi-element content distribution deal, then the subscription rev share there would be a net treatment.

So we would just recognize the portion of that monthly fee that we get in terms of our revenue share. And that’s traditionally how we’ve done it and it’s consistent with part of the content distribution revenue recognition. And that can be lumpy over time because if we don’t recognize that ads is incurred, it’s part of the deal value and your expectations on the deal value can change quarter to quarter. I will contrast that by saying, in general, the Premium Subscription business, which we have within The Roku Channel, so if a SVOD service was part of that and we have 40-plus premium subscription partners within The Roku Channel, then because we’re effectively the wholesaler there, then we recognize that on a gross revenue basis, say, the total monthly consumer cost of that is revenue.

And then the COGS are what we pay back to the content owner. So that’s a gross revenue treatment versus a net revenue treatment before. Both are good models in terms of driving incremental gross profit for Roku but they are treated very differentl


Excellent discussions on Roku here.

One point to clarify - on gross margins - one has to look at it on TTM basis. Since Roku sells the sticks at no margin, and that hardware is still ~1/3 of revenue, it affects blended gross margin calculations.
Also, the sticks sell a lot more in say December quarter and less in other quarters, gross margins vary significantly on quarterly basis.

If you take blended gross margins, they were 39% in 2017, 45% in 2018 and 44% in 2019. Their platform margins are at >60% and platform is 2/3 of total revenue.

Going forward I would think blended margins will fluctuate in 40s as their platform revenue accelerates in the US while they continue to use sticks as lead vehicle to expand international share. Thankfully, they are building strong brand pull for TV manufacturers… for each TV sold with Roku OS, they avoid selling a stick at zero margin AND get paid for the OS on the TV… so slowly, that will razor of the razor blade equation can also turn positive.

If I can add one more point - I think Roku belongs that category of companies that will remain somewhat controversial in investment world… if you look back on Netflix, its gone through so much of roller coaster and if you were overthinking, you could clearly see that Netflix future was tied to heavy investment in content buying and therefore, likely “un-profitable” business for a long time… what you miss is this big trend that would turn Netflix a juggernaut…
I believe Roku belongs to this category… it is becoming a toll booth operator to TV screens for advertisers as well as channels…
It will be a volatile ride but over a period of few years, it can be one of the best return for patient investors.


Thanks for the great input! Maybe I am/was overthinking this. Probably best to just follow the numbers. Currently, their high growth rate in all key metrics speaks a clear language.

Looking at the short term, do you think that the coronavirus crisis is „positive“ for ROKU? On the one hand, they will have way more viewing hours and people signing up; on the other hand, ad budgets were completely slashed. Which will prevail? I would lean towards a positive surprise at the moment.


great stuff here.

Everyone keeps saying advertising budgets will be slashed amid the current pandemic issues. At face value this statement seems reasonable to me. However, as I watch tv recently my unscientific view is that I am blown away as it seems so many currently running ads are new (for instance advertising how the pandemic has changed the advertisers business… think contactless delivery, returning fees to insurance holders due to reduced claims, etc…). Thus, what I think (reduced budgets) and what I see (lots of new commercials trying to drum up revenues under the new normal) are not consistent. So maybe companies like ROKU will hit it out of the park this quarter (some ad budgets reduced, but many more eyes glued on these opportunistic ads creating a situation where companies struggling to minimize damage must be putting there name out there regularly to keep the consumers attention). I think lots of bad news has been baked in at this point and downside is certainly less than it was 3 months ago… 1-2 years out this time period is hopefully just a blip that beat the stock up acutely, but accelerated the inevitable transition towards ROKU. So overall I have a tough time thinking anything other than this is an opportunity.