August 26, 2020
With the coronavirus pandemic throwing conventional entertainment consumption on its ear, streaming video device pioneer Roku has emerged a star on Wall Street as increasing numbers of consumers migrate to over-the-top video.
Roku, together with Netflix more than 12 years ago, helped create the subscription streaming VOD market. It now markets a line of Chinese-made smart televisions, in addition to a branded operating system for third-party consumer electronics. The San Jose, Calif.-based company operates an ad-supported VOD platform, The Roku Channel, and boasts more than 40 million platform subscribers.
In its most-recent fiscal period, Roku saw revenue surge 41% to $43 million, with streaming hours skyrocketing 65% to 14.6 billion. Average revenue per subscribers rose 18% to $24.92 — underscoring the fact a lot of people use Roku to access third-party streaming services such as Netflix, Disney+, Amazon Prime Video and Hulu.
Last Friday, Roku joined Apple and Google in distributing the Sept. 4 premium VOD (dubbed “Premier Access” by Disney) debut of the much-delayed live-action film adaptation of Mulan.
Citigroup Research analyst Jason Bazinet, in an Aug. 26 note, believes Roku will increase its platform sub base to 125 million subs by 2022, with revenue per active account growing from $23 in 2019 to $32 in the next two years.
“In the U.S., we think there are just two firms: Netflix and Roku,” Bazinet wrote. “Their business models couldn’t be more different. But, the fate of the equity we suspect is similar. Both turn on sub growth and rising value per sub.”
Indeed, with increased numbers of consumers housebound due to the pandemic, the stay-at-home market has proven a boon for Roku with platform and player revenue up 46% and 35%, respectively, since last year.
But Roku is hedging much of its future on AVOD, contending that the traditional linear TV business model will migrate to connected televisions it either manufactures and/or empowers.
According to Magna Global, U.S. TV ad spending is expected to decline 24% and domestic digital ad spending is projected to drop 5%. Roku claims its monetized video ad impressions grew about 50% in the most-recent fiscal quarter — with first-time ad buyers up 40% year-on-year. The retention rate among advertisers spending $1 million or more in the first half of 2019 was 92%.
“Our performance advertising business, a newer category catering to direct response advertisers, grew 346% year-over-year, aided in part by marketers re-evaluating their social media spending,” CEO Anthony Wood and CFO Steve Louden wrote in the shareholder letter.
In June, Roku launched “OneView Ad Platform,” a proprietary shopper data partnership with supermarket giant Kroger that targets and measures advertising using retail purchase data.
“When we look at the major tech players, there doesn’t seem to be dominant IPTV strategy,” Bazinet wrote. “Alphabet [parent of Google/YouTube) and Roku cover the entire waterfront: they sell IPTV hardware, push their TV OS and hope to monetize IP video with their app that sits inside the OS.
“Other players such as Amazon, Apple and Netflix are more focused on a narrower slice of IPTV opportunities.”