Analyst: Roku Channel Company’s Fastest Growing Revenue Driver

Roku cut its teeth more than 10 years ago helping Netflix – through a standalone streaming device – create the subscription streaming video market that now dominates home entertainment.

As a publicly-traded company, Roku must grow revenue to appease Wall Street and investors. Doing so exclusively selling low-cost consumer electronics and streaming sticks in an increasingly saturated market won’t work long-term.

About a year ago, the Los Gatos, Calif.-based tech company announced the launch of “The Roku Channel,” a new streaming channel on the Roku platform specifically dedicated to giving users free access to ad-supported catalog movies and TV shows.

With more than 22 million registered users – some of whom pay for access to third-party OTT video services via Roku – the company contends the channel affords advertisers a built-in audience with measurable data and favorable demographics.

And Michael Pachter, media analyst with Wedbush Securities in Los Angeles, agrees.

“We estimate that [average revenue-per-user] from The Roku Channel is the fastest growing contributor to overall revenue growth at Roku,” Pachter wrote in an Oct. 5 note.

The analyst expects the channel to be Roku’s highest revenue contributor by the end of 2019, and for it to continue to grow revenue as Roku migrates internationally.

Specifically, Roku will be able to increase revenue by charging advertisers more (CPMs) to target consumers – and installing the Roku app in third-party Internet-connected televisions, according to Pachter.

“Given all of the data Roku has on its audience and its ability to place finely targeted advertisements for its ad-partners, [the company] will be able to accelerate revenue growth,” he wrote.

Indeed, Pachter estimates The Roku Channel generated 1% of Roku’s total streaming hours in Q4 2017 after it launched. He expects that streaming time to increase to 20% by Q4 2020.

In the most-recent Q2 results, Roku said its branded channel was among the Top 5 used, generating $90.3 million in revenue. Total streaming hours (including third-party apps) increased 57% to 5.5 billion hours.

Pachter contends there are an average 1.5 ad impressions per hour with Roku stating CPMs in the $30 range.

“We expect average-revenue-per-user of [The Roku Channel] to reach $3.68 in 2018, $7.45 in 2019, and $11.28 in 2020,” he wrote.

Roku has recently expanded the reach of its branded channel to some newer Samsung TV models, as well as a standalone website. Roku has just begun to expand the channel internationally, beginning in Canada.

To help boost advertising partnerships, Roku in June launched “Roku Audience Marketplace,” which assists advertisers in targeting specific audience segments, utilizing Roku’s detailed household data.

“With more targeting capabilities, we expect Roku’s CPMs to rise,” wrote Pachter.


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