Roku: The Streaming Leader, But Plenty Of Challenges

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Quick Summary

Roku is a streaming video device and platform company. The company provides a television-based operating system (OS) that allows consumers to stream a variety of services (Netflix, Hulu, Disney+, HBO Max, and many more). This OS is either built directly into televisions ("smart TVs"), or can be added to a TV through devices such as Roku's "Streaming Stick", "Roku Express", or "Roku Ultra" set-top boxes. About 70% of its revenue (and virtually all profits) comes from what the company calls platform sales. The biggest portion of these are through selling advertising on its own channels or through channels the company has access to inventory on. Roku also generates platform sales from selling channel subscriptions. For example, the firm takes 15-20% of Netflix subscriber fees when a customer signs up through Roku. Finally, Roku earns about 27% of sales through selling its hardware devices. The company has over 51 million subscribers (the vast majority in the U.S.) and streamed almost 59 billion hours of content in 2020.

Does The Company Have Rising and Recurring Revenues?

YES. Revenues have been rapidly growing at about 50% year-over-year rates, as customers increasingly migrate to video-on-demand for their entertainment needs. Users are growing rapidly as well, increasing from 19 million in 2017 to over 51 million in 2020, a 39% compound growth rate. This is the early-to-mid stages of a mega-trend, and the addressable video ad market is enormous (over $150 billion in the U.S. alone). International growth will be a big focus in the future, as Roku has already penetrated 40% of U.S. households (more than twice what any cable company has achieved). As for recurring revenue, obviously, player hardware revenue is not recurring. Platform revenue, on the other hand, is basically an advertising model that should be reliably recurring for Roku. As this is where the bulk of sales and practically all cash flows originate from, we feel this gives the company a reasonably attractive revenue model.

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Disclaimer: The content is provided by Alexander Online Properties LLC (AOP LLC) for informational purposes only. The material should not be considered as investment advice or used as the basis ...

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