Author Topic: ROKU - Roku  (Read 9953 times)

valueinvestor

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Re: ROKU - Roku
« Reply #40 on: April 13, 2020, 09:12:00 PM »
If you want a value investment - this is not for you.

After three years of ownership, I'm at a crosspoint on whether to sell this thing or not.

At $12B, Roku values each of its users at $375 each and that's with a 50% decline of it's high.

At the moment, they are currently doing $25 ARPU with revenues of $1.1B with expected revenues to be at $1.3B for 2020.

The only reason why I have not sold is that this is like Tesla without the key man risk. As long as it grows 50%+ a year, and raise capital by issuing it's clearly overvalued stock - it will increase the intrinsic value over time where Wall Street will heavily reward it.

Do I think they have a great product with a durable competitive advantage? Yes. It helps to be a neutral brand third party for advertisers such as Netflix that competes with Apple (AppleTV) and Amazon (FireTV). It also helps that it's pureplay, as opposed to part of a huge tech company on valuation and corporate culture standpoint.

If I had to put a fair value - it would be $3B - however it was a small 5% position to begin with that ballooned into 20% of my portfolio. Edit: Also a reason why I hesitate to sell anything after a rally because I would have missed out on large gains.

However, it is also not unfathomable that revenues will grow at a 40% clip annually which will again make this a bargain. Since you will have a stake in a dominant streaming box company, which would most likely be the new "cable" box of the streaming world.

Does anyone have any input?
« Last Edit: April 13, 2020, 09:13:51 PM by valueinvestor »


aglittell

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Re: ROKU - Roku
« Reply #41 on: September 10, 2020, 09:44:24 AM »
What're your thoughts at $22bln?

Roku offers a great product that solves a growing issue. Consumers continue to increase their number of streaming service subscriptions, and Roku offers the platform that connects them w/ ease and in a cost efficient manner. Demand for the product should continue to grow while a consumer's alternative is to use a less intuitive and more expensive smart TV or browse the streaming services on their computer and then connect to a TV. With growing demand and a lack of solid alternatives, I expect Roku to continue to see impressive user growth.

Roku makes very little profit from selling the players - they need to drive monetization of the growing user base. Advertising on the platform is the key area for monetization. Ads appear on ad supported channels; I have used Roku TVs many times and have yet to see an ad. Maybe because I only use it for Netflix and HBO. The level of future monetization depends on the effectiveness of the ads, in a world where effectiveness can very easily be quantified. Compare the level of targeting that Roku can offer to a FB/Insta ad.

Roku's 40mm and growing user base is undoubtedly very valuable but I am skeptical of how effective ads on ROKU can be. Is the degree of effectiveness from a targeting perspective that dissimilar from a normal TV channel? Consensus estimates for Roku's FY22 user base and ARPU are 73mm and $34 (currently 43mm and $23), resulting in revenue of $2.8bln w/ $203mm in EBITDA. So at today's valuation, we're paying 6.6x EV/Sales and 93.5x EV/EBITDA for consensus FY22 estimates.

I began research on ROKU after being impressed w/ the product. After a very in-depth 20 minutes of research on Roku I'm inclined to buy FB. I have a much higher degree of confidence in the value proposition of FB ads compared to Roku's. Consensus estimates for FB DAUs and ARPU for FY22 are 2.0bln (with a B) and $40*. We're paying 12.7x Consensus FY22 EBITDA for an advertising platform that is unmatched in size and targeting effectiveness (insert comment about data privacy here).

*20 minutes of research limits me to consensus estimates, sorry. They're both well covered by the street.