Roku Inc - Ordinary Shares - Class A

Description

Roku, Inc. engages in the provision of a streaming platform for television. It operates through the Platform and Devices segments. The Platform segment includes digital advertising and related services including the demand-side platform and content distribution services such as subscription and transaction revenue shares, media and entertainment promotional spending, the sale of premium subscriptions, and the sale of branded channel buttons on remote controls. The Devices segment is involved in the sale of streaming players, audio products, smart home products, and accessories that are sold through retailers and distributors, as well as directly to customers through the company�s website. The company was founded by Anthony J. Wood in October 2002 and is headquartered in San Jose, CA.

The bullish thesis for Roku follows a thread of thought like this. The linear TV advertising market, globally, is at over $200 billion. Here is the chart from Statista.



TV advertising expenditure worldwide is expected to grow to $228.8 billion. The portion of that in the United States is forecast at about $75 billion.

Now, all the TV advertisers see what directed and personal ads can do -- they are buyers on Facebook as well, but they were hamstrung -- if you want to reach TV viewers, you have to go rather blindly. Then cord cutting and streaming happened.

Here is the cord cutting trend, overall:



eMarketer projected that the number would increase from 24.9 million in 2017 to 55.1 million in 2022.

Then there is the Pay TV penetration rate:



And while we're at it, here is the chart worldwide, also from the magnificent Statista:



The cord cutters who are now OTT subscribers, are still consuming TV -- in fact, their appetite is voracious with all the new content coming from... everywhere.

Here is a chart of the average weekly time spent with over-the-top TV in the United States (in hours):



With the number of hours of TV getting turned into streaming, and with the digital footprint that ROKU takes up with its tens of millions of active users, this company has turned TV ads into Facebook.

Roku is a pioneer in advanced OTT advertising with the industry's first Nielsen measurement solution, native interactive ad technology, and its recently launched Roku Ad Insights Measurement suite. Roku operates a large and growing dedicated OTT ad sales team.

With the launch of Audience Marketplace, Roku is extending these advanced targeting capabilities to major publishers, as part of an effort to enhance advertising flowing through its platform, and to help publishers make their offering more compelling in an increasingly programmatic, data-driven TV advertising market.

Every advertisement on ROKU to its users is custom for that individual user. Further, according to Nielsen, 10% of 18 to 34-year-olds in the U.S. are only reachable on the Roku platform in the living room.

And the evidence that this is working, again from the CEO (our emphasis added):



Roku believes that the story may not even be in those lines above.

Roku announced its own channel - where it controls everything (as opposed to streaming hours on Netflix on ROKU). This channel is now available on the web, even mobile, without owning a Roku streaming stick or a smart TV powered by Roku.

Then it went further, On January 2nd, 2019, Roku announced it is expanding The Roku Channel to include "Premium Subscriptions."

In addition to 10,000+ free ad-supported movies and TV episodes already available, The Roku Channel will soon offer users the option to add 25+ Premium Subscriptions from providers such as SHOWTIME®, Starz and EPIX.

The Pickaxe to the Gold Rush
Beyond streaming sticks and boxes, Roku is also licensed by actual smart TV makers -- that's the glass and metal crew, Element, Hisense, Hitachi, RCA, Sharp, Westinghouse, and TCL (the second best selling smart TV maker in the United States).

You see, Roku's business goes beyond "those sticks you use for streaming that time," and well into the guts of technology - the guts of a new thematic, whether that be a streaming stick, a streaming box, or the actual operating system for smart TVs.

Whether the company is successful or not is certainly up for debate -- large competitors could be its downfall. But, the bullish thesis rests in the lines above.