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Roku: Riding The Wave Of The OTT Revolution

Aug. 05, 2018 12:24 PM ETRoku, Inc. (ROKU)AAPL, AMZN, GOOG, GOOGL, NFLX91 Comments
J Cooper profile picture
J Cooper


  • Operates in a rapidly-expanding market.
  • Has successfully competed with giants for years.
  • High-margin platform revenues have doubled y/y, based on big growth in user count and in revenue per user.
  • Roku reports Q2/18 results on August 8, with analysts expecting revenue of $141.8M and an EPS loss of $0.15/share.
  • I would like to see Roku report at least 22.5 million active users and ARPU of at least $15.80.

Investment Thesis

Roku (NASDAQ:ROKU) is the smallest company and the largest player in the over-the-top ("OTT") streaming market.

This is a rapidly-expanding sector: Data shows triple-digit growth in global streaming TV consumption year-over-year. That growth is likely to continue with the proliferation of streaming services (including new services from Disney and AT&T) and continued cord-cutting trends.

The OTT market used to be a market made up of set-top boxes such as the Apple TV (AAPL) and Roku's player products. Increasingly, the market is moving away from those boxes and moving towards integrating streaming television software into smart televisions. Hardware players continue to be made and sold, but Roku's value stems primarily from their software rather than their hardware. Roku and Google (GOOG; GOOGL) are the two largest competitors in the smart TV streaming software market. Amazon (AMZN) is also in the market but is a smaller player (at least for now).

Roku's value to investors is based on their growth and margins in their software (their "platform" segment) rather than in their hardware (their "player" segment). Roku makes money through their software through advertisements (such as in the Roku Channel through Direct Publishers) and when people sign up for subscription services using their Roku device.

Roku's platform revenue is booming right now, with platform revenue showing triple-digit growth in the last quarter. This growth is thanks to a 46% y/y increase in active accounts and 42% y/y growth in revenue per active account. And this revenue is high-margin: Roku's gross margins in the platform category were between 71% and 77% in the last four quarter.

In short, Roku is a small-but-strong competitor in a market that has substantial tailwinds. Because of this, Roku's most important segment more-than-doubled in size last year and will see continued growth moving forward. Roku will be aided by the

ChartROKU Market Cap data by YCharts

This article was written by

J Cooper profile picture
I used to run a Marketplace service called The Growth Operation.  That service has subsequently been moved to Julian Lin, who is highly-skilled in analyzing and evaluating the cannabis investing marketplace.Julian has renamed the service to The Weed Investors, and it promises to continue to be a great resource and community for investors interested in this growing sector.  I am a contributor to Julian's The Weed Investors community.Thank you to each and everyone who previously subscribed to The Growth Operation.  I appreciate all of your support.-J. Cooper

Analyst’s Disclosure: I am/we are long ROKU, GOOGL, AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am long ROKU with an ACB of ~$40.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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