stocknovice's August portfolio review

Bought Roku at $40 in January and sold at $150. I’ll be back in but it’s ran too much to fast for me. The last quarter was killer and you all that aren’t owning it because you’re looking at it as a hardware play and tracking overall 47% margins.

That’s the old roku. Instead track it as an add platform play. Those margins are at 86% and all you should be tracking.
Hope it drops to the 120’s so I can load up again.

How has owning TTD during that time worked? Not nearly as good. I’ll be in TTD before next earnings but don’t see much of a need to try my luck with them until about that time. But there’s room for both to kill it in this market.

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Bear,

My best guess – tons of ad revenue from YouTube. People get Roku for the all-in-one platform. Anything they watch on YouTube has ads. Those ads add up (see what I did there :)).

Just a guess, but I think it’s much bigger than what Roku channel brings in,

Brian

Long ROKU (very small position)

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My best guess – tons of ad revenue from YouTube. People get Roku for the all-in-one platform. Anything they watch on YouTube has ads.

Brian, why would YouTube let Roku have any of that ad revenue? YouTube doesn’t (I wouldn’t think) care if people watch their ads on Roku, their phone, their computer, their iPad, another device connected to a TV, etc. It seems crazy to think they’d give anything to Roku, doesn’t it?

Bear

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Roku could block YouTube ads or replace them with their own. Adblockers are developed and used for free. It’s probably easier to compromise and pay a small fee to those who watch on Roku than continue to change code or not work with the platform.

Brian, why would YouTube let Roku have any of that ad revenue? YouTube doesn’t (I wouldn’t think) care if people watch their ads on Roku, their phone, their computer, their iPad, another device connected to a TV, etc. It seems crazy to think they’d give anything to Roku, doesn’t it?

Bear, pretty sure this has to do w the great distribution Roku has ---- 30.5M active accounts and 9.4Bn streaming hours. The content on the home screen of roku includes Netflix, Amazon, HBO, Pandora, CBS News, etc., YouTube has to be a part of that or potentially risk losing mindshare.

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Brian, why would YouTube let Roku have any of that ad revenue

Respectfully that should be obvious. Billions of ad impressions. What else are you going to watch you tube on. A phone? To stream it on the TV you make a deal with ROKU and Amazon, etc.

Darth

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I JUST DON’T UNDERSTAND HOW THEY MAKE MONEY


Feel free to challenge or add to the list below:

  1. Hardware: Roku makes money on the sale of the Roku device.

  2. Hardware: Roku makes money on the sale of Roku enabled CTVs.

  3. Hardware: Roku makes money on via deals Roku cuts with TV manufacturers (Sharp, Hitachi, et.) to use Roku software on their TVs.

  4. Subscription: The Roku Channel as a commission based subscription hub for other subscription services. Users can subscribe to multiple channels through Roku and pay just one bill via Roku.

  5. Promotion: Roku makes money when premium subscription services pay to have dedicated buttons on the Roku remote.

  6. Promotion: Roku makes money when premium subscription services pay so that they show up on the homepage when users start up the Roku device.

  7. Promotion: Roku is paid commissions from subscription services that Roku recommends which channels a user should download when setting up their Roku device.

  8. Advertising: Roku makes money when Roku sells the ad inventory it gets from all ad-supported publishers (including YouTube). Roku gets ad inventory from publishers in lieu of taking a cut of each publisher run add because Roku feels that it is too hard to track and monitor. Roku prefers to just take ad inventory in exchange for the extended audience reach Roku provides.

  9. Advertising: Roku makes money on when selling Roku’s own add inventory on Roku’s own channel; The Roku Channel.

  10. Advertising: Roku makes money when Roku strikes deals with publishers to sell their unsold ad inventory.

  11. Advertising: Roku makes money using the new Roku Audience Marketplace (i.e. programmatic advertising data, first party data and ad-technology), by assisting publishers in selling their ad inventory to their targeted audience.

  12. Advertising: Roku makes money by selling ad inventory on behalf of the smaller publishers that may not have the internal corporate infrastructure to do so on their own behalf.

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What else are you going to watch you tube on. A phone? To stream it on the TV you make a deal with ROKU and Amazon, etc.

Darth

With a smart TV you don’t need either Roku or an Amazon Firestick to stream Youtube or anything else from the internet. I think Roku makes it easier, but that doesn’t seem like much of a moat to me.

Jeb

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Hmc!

That pretty much answers that question.

Thanks for the thorough summary.

It’s an encouraging indicator that ROKU stock still has room to run that so many smart investors have yet to understand the ROKU model, the brilliant Anthony Wood strategy to build a successful company by taking advantage of the massive move from cable to CTV and providing necessary services to consumers, content providers, and the associated adtech network.

Continued massive growth ahead for ROKU.

but that doesn’t seem like much of a moat to me.

Oh well. They have a dominant market share that they are pulling away with.

The non-ROKU or non-FireTV smart TVs are not an adequate experience. I’ve been using FireTV for years and there’s no way I’d ever use the clunky experience on my Samsung TV. And ROKU is pulling away from FireTV so they have either a better product or a better strategy or both.

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Roku’s moat is ease of use. When dealing with the public that’s a pretty strong moat. And if the OS on their TV is Roku they’re not going to have a choice but to use it. I am concerned however Roku may be running out of tv makers to sell to and not get much higher than their current 33%. When Samsung has 33% of all TVs sold. That leaves another 33% max to go after.

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Darth: Respectfully that should be obvious. Billions of ad impressions. What else are you going to watch you tube on. A phone? To stream it on the TV you make a deal with ROKU and Amazon, etc.

Haha. Saying “respectfully” doesn’t magically make a condescending statement respectful.

And yes, a phone! I’m sure countless people consume YouTube that way. Yes, streaming through Roku or Fire is a common way to watch Youtube on a television, but I’m suggesting that Roku and Fire benefit more from this than YouTube does.

Darth: And ROKU is pulling away from FireTV so they have either a better product or a better strategy or both.

That’s wrong, according to this, because it’s FireTV that has more eyeballs: https://www.fool.com/investing/2019/05/16/heres-how-many-fir…

hmcproperties, that was a great list. You kind of broke it down to hardware, subscriptions, commissions, and advertising. Leaving hardware aside since it’s not a path to great profits, I would imagine the lion-share of their platform revenue comes from advertising, but as I said, it would be really nice to have a breakdown. Within advertising, your points here seem like the key ones. I’d guess 90% of Roku’s revenue comes from:

8. Advertising: Roku makes money when Roku sells the ad inventory it gets from all ad-supported publishers (including YouTube). Roku gets ad inventory from publishers in lieu of taking a cut of each publisher run add because Roku feels that it is too hard to track and monitor. Roku prefers to just take ad inventory in exchange for the extended audience reach Roku provides.

9. Advertising: Roku makes money on when selling Roku’s own add inventory on Roku’s own channel; The Roku Channel.

It’s extremely hard to understand how they somehow make $21/year per user and rising. Sure, as Darth said, “billions of ad impressions.” But for the impressions from #8 above, shouldn’t almost all the revenue go to Netflix, Youtube, HBO, etc?

I would guess #9 is a tiny amount, but I don’t know for sure. Have they said how many of the 9.4 billion hours watched last quarter were on their “Roku Channel?”

Thanks,
Bear

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The non-ROKU or non-FireTV smart TVs are not an adequate experience. I’ve been using FireTV for years and there’s no way I’d ever use the clunky experience on my Samsung TV. And ROKU is pulling away from FireTV so they have either a better product or a better strategy or both.

What are the numbers Darth? We know that Roku has 30 million subscribers, Amazon does not give out their numbers but if you have them please post them. I don’t believe Roku is pulling away from Amazon because of prime day and how many firesticks they sell.

I think people pick their tv because of the picture not the os. Then they go out and pick a box to try on their tv. Samsung is trying to incorporate the Tv as the screen to the smart home, controlling everything including the tv. That is interesting. Amazon is trying to do the same thing with Alexa. I see this as a big fight with Google, Amazon, Apple, Roku all fighting it out.

Here is an article dated 2019 discussing all the tv platforms.

https://www.techradar.com/news/television/6-best-smart-tv-pl…

Andy

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Bear,

From the standpoint that I am not very “tech oriented”; I compiled the list of revenue sources having read various articles over the past few days; Digiday, TechCrunch, TMF and a few others. You ask a number of good questions that I too am looking to answer.

Although I am not a SeekingAlpha subscriber; there appears to be a rather topical, subscriber only article that ran on SeekingAlpha dated April 22, 2019 and titled “How Does Roku Actually Make Money”. That may unlock a few more of our questions, but I am unable to access.

For what its worth for this discussion, the lead-in to the SeekingAlpha article introduces the topic of Roku’s revenue being broken down into three streams:

  1. AVOD - Advertising Video On Demand,
  2. TVOD - Transaction Video on Demand, and
  3. SVOD - Subscription Video on Demand.

To date, the problem I have had deciphering revenue streams is that Roku appears to lump advertising revenue into “Platform Revenue”. Perhaps a deeper dive into the ER or CC transcript may unlock some answers.

Harley

Harley, I looked at the 10k. They don’t break down platform revenue. They say it’s made up of advertising and subscriptions.

There are multiple ways Roku generates revenue, many of them irrelevant. For example selling operating systems to tv makers is not a meaningful addition to revenue but it is a source.

The way I see it and what’s important is getting Roku operating systems anywhere and everywhere so people use the Roku Channel and watch the advertisements. Every market share report I see out there says Roku is the dominant streaming operating system and the lead is growing. Not sure why the disconnect with amazon FireTV market share.

The way I see it and what’s important is getting Roku operating systems anywhere and everywhere so people use the Roku Channel and watch the advertisements. Every market share report I see out there says Roku is the dominant streaming operating system and the lead is growing. Not sure why the disconnect with amazon FireTV market share.

Amazon Fire TV’s lead over rival streaming platform Roku is widening. In January at the Consumer Electronics Show in Las Vegas, Amazon said it had “well over” 30 million Fire TV users compared with Roku’s then 27 million active users. In roughly four months’ time, Fire TV has grown to more than 34 million active users, according to new statements made by Amazon this week. Meanwhile, Roku grew its account base by 2 million in the first quarter of 2019, to reach 29.1 million active accounts, per its earnings report this month.

https://techcrunch.com/2019/05/15/amazon-fire-tv-tops-34-mil…

Andy

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YouTube was pulled from the Fire TV system a while ago. Not sure if it’s still there. But Amazon just made a browser based workaround. So from that standpoint it seems the platform needs the content more than the other way around, at least when Google and Amazon are both selling add on devices.

It’s hard for me to get Roku. The last time I was in the market for a TV about 2 years ago my research led me to Samsung, LG, Sony, and Vizio. I didn’t even know RCA was still in business until I saw it was a partner on the Roku site. They seem to have cornered the market on lesser known TV brands but does that mean they will hit a ceiling and any major TV brand will use their own system?

They are producing, and maybe simply replacing lower end legacy TVs will be enough for growth. Relying on cord cutting for growth does seem a bit risky as the major cable companies could always just decide to offer their own packages to compete with cord cutting (especially Comcast if NBCUniversal ever gets a streaming service going).

Maybe these long term issues are irrelevant. Just follow the money which shows Roku hitting it out of the park, and wait to respond when the issues actually materialize.

Andy -

Thanks for the link. That article does appear to give Fire TV the lead in accounts. The other way it can be broken down is the number of devices. From that perspective, Roku might have the lead. From the most recent shareholder’s letter (https://ir.roku.com/static-files/df3d060c-0975-4903-83d3-0e1… ):

A range of studies confirms the strength of Roku’s position in the U.S. marketplace. According to Kantar Millward Brown, Roku is the #1 TV streaming platform in the U.S. by hours streamed. Last month, Strategy Analytics reported that the Roku operating system powers 41 million OTT devices and smart TVs in the U.S. This is 36 percent greater than the next closest competitor and expected to grow. Recently released Parks Associates consumer survey data reveals Roku had 39% of the US streaming media player installed base as of Q1 2019.

There’s an accompanying chart detailing the Strategy Analytics info that’s worth a look. Regardless, I view all these sources as reinforcing the idea that Roku is seeing success in increasing the number of eyeballs using it’s platform even when you acknowledge competition does indeed exist. I’ll likely remain a shareholder as long as that trend continues.

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Roku’s streaming TV platform accounted for more than 30% of US sales of connected TV devices in Q1 2019, further increasing its lead in streaming TV platforms according to the latest research from Strategy Analytics. The report, USA Connected TV Device Vendor Market Share Q1 2019, finds that there are now more than 41 million Roku-based devices in use, including Roku media streamers and Roku-based smart TVs, accounting for 15.2% of all media streaming devices. Roku now has a 36% lead over the next major platform, Sony PlayStation, in terms of devices in use. The report predicts that this lead will stretch to 70% by the end of the year, largely as a result of the success of Roku’s smart TV partner strategy.

https://www.businesswire.com/news/home/20190626005529/en/Rok…

ROKU absolutely dominates installed base and sales in the US. There may be a number of reasons for the disconnect with MAU numbers, namely Roku’s lack of a substantial international presence. Maybe difference in the way they define MAU.

This was what I was referencing though. I’m not sure of the maturity for ad supported content in other countries, but I’ll try to have some more comments later when I have more time.

The most important thing is Streaming Hours. Roku rules streaming hours I believe, though I’m having trouble finding where I read that. It is in the shareholder letter, but I was looking for the source that had more details. Again that’s US based.

I’m in a FireTV household myself, but what I’ve researched has shown that ROKU is the dominant player here.

Darth

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Hey guys, there are now 37 posts on this ROKU thread and people seem to be repeating and repeating what they, or someone else has said. I’m not asking to stop the thread, but how about easing off unless you really have something new to add.
Thanks,
Saul

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