Author Topic: ROKU - Roku  (Read 2313 times)

JayGatsby

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Re: ROKU - Roku
« Reply #10 on: November 28, 2017, 11:24:45 PM »
Spent some time looking at it. Setting valuation aside, there's actually some pretty nice aspects to the business. Yes, they sell cheap electronics that compete with Amazon, but they also have a revenue stream attached to it. Their "Platform" business is where the real profit potential is. They get licensing revenue from stuff that is purchased on the Roku and also get revenue from ad sales on some channels. Current ARPU on a trailing 12 basis is $12.68. That portion of the business grew 137% YoY. So they sell the devices for breakeven (at a loss after you factor in R&D, SG&A, etc) to capture that back-end portion. Additionally, they have partnerships with a few TV manufacturers to provide the software (TCL and Sharp being the ones that are selling best on Amazon). Amazon's Fire Stick probably has a similar model: sell at breakeven to encourage people to buy more content. The difference for Amazon though is that they're included in all of the non-branded smart TVs anyway.

Device sales have been flat but that continues to add users to the software business at a pretty rapid clip. My Apple TV is probably 7 years old now, so I'm assuming the replacement cycle for these sorts of things isn't super quick (Apple continues to update the software, so I assume Roku does the same). It seems like from a longer-term perspective these devices as stand alone objects disappear (similar to Tivo), as similar services seem to be built into most new TVs. The device itself is kind of like those adapters people put into the tape deck in their car so that they could play CDs. After a generation of cars were replaced, the devices became obsolete.

If at some point the device itself becomes obsolete, they have to build enough partnerships to get their software into more TVs. That probably means having a differentiated product that is profitable enough that they can pay or revenue share with TV companies. Samsung, Vizio, and Sony all have their own smart TV offerings built in. Sony's actually integrates with Alexa and Google Home so you don't have to lose/find the remote.

So from a valuation perspective, based on current growth rates it isn't crazy to model out how they'd get to a profit number in say 2020 that could support their valuation. But then the question of how to grow as the hardware component becomes obsolete. So, in conclusion, I think it probably is a good short on a slightly longer horizon, but I think the Andrew Left comment today that the valuation is a "total joke" is overstated. They'll likely continue to have a good run until the replacement cycle for TVs starts to outnumber the # of old TVs upgraded via their device.

Curious if anyone sees it differently.

Also, this may be the most absurd promotion of the season.. on a $5,000 TV you get one month free of Netflix (an $8 value): https://www.amazon.com/Sony-XBR-85X850D-Class-Netflix-Service/dp/B073SL9D6X/
« Last Edit: November 29, 2017, 11:33:07 AM by JayGatsby »


mwtorock

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Re: ROKU - Roku
« Reply #11 on: November 29, 2017, 06:14:20 AM »
 :D that promotion made my day.


Jurgis

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Re: ROKU - Roku
« Reply #12 on: November 29, 2017, 07:58:47 AM »
It's a good writeup, JayGatsby.  8)

rkbabang

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Re: ROKU - Roku
« Reply #13 on: November 29, 2017, 08:10:02 AM »
It seems like from a longer-term perspective these devices as stand alone objects disappear (similar to Tivo), as similar services seem to be built into most new TVs. The device itself is kind of like those adapters people put into the tape deck in their car so that they could play CDs. After a generation of cars were replaced, the devices became obsolete.

If at some point the device itself becomes obsolete, they have to build enough partnerships to get their software into more TVs. That probably means having a differentiated product that is profitable enough that they can pay or revenue share with TV companies. Samsung, Vizio, and Sony all have their own smart TV offerings built in. Sony's actually integrates with Alexa and Google Home so you don't have to lose/find the remote.

I really don't know why the TV manufacturers haven't realized that they should stick to making the panels and leave the software/OS to Roku.  Both of my 4K TV's are so-called "smart TVs", i.e. they have a processor running an OS and support apps, but the software is just awful, the remotes are just awful and overly complicated.   After using them as is for a few months I had to go out and buy the Ruku box anyway. The UI is superior, the remote is so simple you can use it by touch in the dark without looking.  I'd prefer it if the TV manufacturers just made a dumb monitor panel with some HDMI inputs or built the Ruku right into the TV (like the excellent sets from TCL have done).  Why these hardware makers think their hacked together crappy OSes that they ship on these TVs are okay is beyond me.

DooDiligence

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Re: ROKU - Roku
« Reply #14 on: November 29, 2017, 09:21:10 AM »
It seems like from a longer-term perspective these devices as stand alone objects disappear (similar to Tivo), as similar services seem to be built into most new TVs. The device itself is kind of like those adapters people put into the tape deck in their car so that they could play CDs. After a generation of cars were replaced, the devices became obsolete.

If at some point the device itself becomes obsolete, they have to build enough partnerships to get their software into more TVs. That probably means having a differentiated product that is profitable enough that they can pay or revenue share with TV companies. Samsung, Vizio, and Sony all have their own smart TV offerings built in. Sony's actually integrates with Alexa and Google Home so you don't have to lose/find the remote.

I really don't know why the TV manufacturers haven't realized that they should stick to making the panels and leave the software/OS to Roku.  Both of my 4K TV's are so-called "smart TVs", i.e. they have a processor running an OS and support apps, but the software is just awful, the remotes are just awful and overly complicated.   After using them as is for a few months I had to go out and buy the Ruku box anyway. The UI is superior, the remote is so simple you can use it by touch in the dark without looking.  I'd prefer it if the TV manufacturers just made a dumb monitor panel with some HDMI inputs or built the Ruku right into the TV (like the excellent sets from TCL have done).  Why these hardware makers think their hacked together crappy OSes that they ship on these TVs are okay is beyond me.

Totally agree RK.

I've had a Roku Premier for quite a while now & app / content discovery is great.

Thanks Jay for a very good writeup.

Almost finished with Cable Cowboy & trying to figure this whole thing out.

So far, I don't have faith in anything but DIS.
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rkbabang

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Re: ROKU - Roku
« Reply #15 on: December 06, 2017, 05:22:22 AM »

DooDiligence

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Re: ROKU - Roku
« Reply #16 on: December 06, 2017, 03:10:54 PM »
This will help Roku and AppleTV

https://www.theverge.com/2017/12/5/16738752/google-youtube-amazon-punishing-customers-feud

Seems childish (cutting their noses off to no advantage.)

How much power does Roku have as an aggregator?

Is this really a winner take all industry?
« Last Edit: December 06, 2017, 03:12:27 PM by DooDiligence »
abc | abev | aapl | bbh | brk.b | cri | cvs | dva | dis | ew | ffxdf | gpc | mo | nvo | sftby | vde

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LC

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Re: ROKU - Roku
« Reply #17 on: December 06, 2017, 03:23:16 PM »
I wouldn't count out the TV manufacturers. These devices are not hard to design and integrate.
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