What I Like About Roku
Value, Growth At A Reasonable Price, Event Driven, Media
Seeking Alpha Analyst Since 2006
I am a fundamental-driven analyst. I read sec filings/call script/ppt, study competitors, try out products, keep track of key personnel - leave no stone unturned to build rock-solid convictions.
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I look for 3 types of companies.
Misunderstood underdogs - power players mispriced for wrong reasons. Some past picks include H&R Block ($HRB)
Turnaround stories - they failed before, hated, and still being ignored by investors, despite coming back like a champion. Recent picks include: Deutsche Bank ($DB), and United Natural Food ($UNFI)
True innovators - they are category creators and pioneers, they grow where innovation thrives. Past picks include Roku ($ROKU).
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I am a generalist and am aware no matter how much I study a company, there are always investors out there in the SA community, who know a lot more than I do. They keep me stay humble and stay hungry.
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I am a practitioner of Ray Dalio's principles, an admirer of Peter Lynch's pragmatic style, and a follower of Howard Marks' wisdom.
Summary
- Roku is a strategic innovator and efficient operator in the TV streaming platform.
- It has a proven track record of competing successfully with some world's largest enterprises.
- Explosive growth without losing significant amount of money.
Roku
Roku is the leading streaming platform in the US and strives to be the orchestrator in the TV streaming marketplace.
Roku has 2 business segments, player and platform. The player segment builds and sells streaming devices, and the platform segment manages the streaming platform and generates revenue from digital advertising, subscription, and transaction revenue shares.
3 key operating metrics, Active Accounts, ARPU, and Streaming Hours best represent Roku's growth story.
Source: Created by the author using data from Roku SEC filings
Source: Created by the author using data from Roku SEC filings
Source: Created by the author using data from Roku SEC filings
As both Active Accounts and ARPU grow at 20%+ YoY for the last few years, its platform revenue (active accounts times ARPU) grows at 50%+ YoY for the last few years. Its exponential topline growth earns itself a spot in the newly minted acronym SMART as the next generation FAANG.
Behind Roku's growth
Roku's stellar growth story is supported by its competitive/rapid-evolving products, forward-looking strategies, and its stance to maintain a neutral platform position. Its past success and operating records give me confidence that it will continue to do so.
Product - Roku has a history of rapid iteration to build great products. Roku has been upgrading its core products continuously and has its 8th generation in 2019. Among the top 4 OTT devices, Roku maintains the No.1 market share with about 50% market share (you can find details in a late section).
Stay ahead of the curve - Roku signed a partnership agreement with TCL in 2014 when Smart TV was only 40% total TV shipment. Since then, the global smart TV share increased to 90% in 2020 and continues to grow. This forward-looking strategy back in 2014 planted seeds for Roku's dominant market position today.
In 2019, Roku acquired DataXu, and subsequently built View One (a Demand Side Platform), an important move to provide its contents publishers value-added services.
Maintain a neutral position - this might be a controversial one especially given its recent deal holdup with HBO Max and peacock. I think Roku strikes a good balance to keep its operating system (RokuOS) open to both TV manufacturers and content publishers while continuing to build a viable business model. I think that is key for Roku to thrive in such a competitive market place among 3 tech giants (GOOG/AAPL/AMZN).
For these interested, Roku's original story reveals quite a bit lot about why Roku becomes what it is today.
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