ROKU - Roku

[Guest Cameron]

A company with a total of negative $255 million in shareholder equity in its recent quarterly report, worse than the negative $193 million shareholder equity on Dec. 31st 2016. Revenue growth was 40% for the quarter as well, losses from operations have been cut in half. Has a solid 195x Price to FCF on a 12 month trailing basis which makes this a screaming buy to any value investor. 7.1 forward PSR, higher than Netflix's PSR at the moment. Current ratio and quick ratios were cut in half on a Y/Y basis. Float is pretty small.

 

They sell the hardware at near breakeven that acts like a smartphone for your tv which sounds like any other product in the field like the FireTV, Apple TV, Chromecast Etc. Most of the money is made from the platform advertising. Maybe someone with more intellect than me (pretty much anyone), can explain how this company survives? Competition has much deeper pockets than them and directly competing with Apple, Amazon and Google doesn't sound like it will end the same way the romance novels that I read end.

 

Anyway, this is definitely not a bubble.

[rkbabang]

I don't know how Apple, Amazon, & Google have not crushed them already, but they haven't.  I've tried Apple TV, Chromecast, and FireTV and the UIs all suck compared to Roku.  I always end up going back to Roku.  I've got TCL Roku TVs in all of the bedrooms of my house and the two 4K TVs have Roku  Ultra boxes attached.  I though the larger companies were going to buyout or crush Roku years ago, but for all their size and money they just can't seem to build a better set top box.

 

I'm not planning on investing though.

[Jurgis]

I have Roku box. Never tried non-Roku boxes. There's definitely stickiness. OTOH, I only watch Netlix/Amazon on it and I don't know if they get money for this.

 

(OT perhaps: all non-Ethernet boxes are automatically disqualified. I would not want/try to run video over WiFi.)

 

No plans to invest.

[rkbabang]

I have Roku box. Never tried non-Roku boxes. There's definitely stickiness. OTOH, I only watch Netlix/Amazon on it and I don't know if they get money for this.

 

(OT perhaps: all non-Ethernet boxes are automatically disqualified. I would not want/try to run video over WiFi.)

 

No plans to invest.

 

I have the Roku Ultra boxes hardwired with cat6 cable, I wouldn't even want to try 4K over wifi, but the bedroom TVs (TCL TVs with Roku built in) are all using only wifi and work fine at 1080p.  I use it for Netflix, Amazon, Playstation Vue (I finally got rid of cable), and surprisingly Sony's free "Crackle" channel has some good original shows.  I've watched "StartUp" and "Chosen" so far, both are good although there are commercials you can't fastforward through which is a little annoying.  And of course the kids use them mostly just for Netflix and YouTube.

 

 

[Guest Cameron]

I have Roku box. Never tried non-Roku boxes. There's definitely stickiness. OTOH, I only watch Netlix/Amazon on it and I don't know if they get money for this.

 

(OT perhaps: all non-Ethernet boxes are automatically disqualified. I would not want/try to run video over WiFi.)

 

No plans to invest.

 

Unless they have ads over the Amazon and Netflix app then no. Its like the App Store where individual apps have ads.

[Guest Cameron]

I don't know how Apple, Amazon, & Google have not crushed them already, but they haven't.  I've tried Apple TV, Chromecast, and FireTV and the UIs all suck compared to Roku.  I always end up going back to Roku.  I've got TCL Roku TVs in all of the bedrooms of my house and the two 4K TVs have Roku  Ultra boxes attached.  I though the larger companies were going to buyout or crush Roku years ago, but for all their size and money they just can't seem to build a better set top box.

 

I'm not planning on investing though.

 

A buyout does seem like the likely outcome.

[villainx]

I don't know how Apple, Amazon, & Google have not crushed them already, but they haven't.  I've tried Apple TV, Chromecast, and FireTV and the UIs all suck compared to Roku.  I always end up going back to Roku.  I've got TCL Roku TVs in all of the bedrooms of my house and the two 4K TVs have Roku  Ultra boxes attached.  I though the larger companies were going to buyout or crush Roku years ago, but for all their size and money they just can't seem to build a better set top box.

 

I'm not planning on investing though.

 

A buyout does seem like the likely outcome.

 

Or some Softbank Vision fund type major investment?

 

I think Roku has serious potential as a company, as folks I know who are not big spenders use it.  That's sort of one of my litmus test, which applied to Costco and Netflix, services or products that are so beneficial even the cheap folks I know buy/use it.  But right now, I'm just lurking around.

[TorontoRaptorsFan]

No stickiness to product. AppleTV 4K is great. iTunes movies in 4K look great. I can bet that sales for 4K Blu-Ray players continued to drop with it's release. Atmos being added soon. How does Roku make any recurring revenue from their boxes? Google, Amazon, Apple, Movie/TV studios have content to charge for...

[mrholty]

No stickiness to product. AppleTV 4K is great. iTunes movies in 4K look great. I can bet that sales for 4K Blu-Ray players continued to drop with it's release. Atmos being added soon. How does Roku make any recurring revenue from their boxes? Google, Amazon, Apple, Movie/TV studios have content to charge for...

 

Roku feels like Tivo.  Great product but a company that will never make money.  It will chug along for a while, then it will sue and win some lawsuit that the big guys infringed on a patent.  Stock pops, big company appeals and wash and repeat.

[villainx]

No stickiness to product. AppleTV 4K is great. iTunes movies in 4K look great. I can bet that sales for 4K Blu-Ray players continued to drop with it's release. Atmos being added soon. How does Roku make any recurring revenue from their boxes? Google, Amazon, Apple, Movie/TV studios have content to charge for...

 

The one thing Roku has going for it is that it's not Apple, Amazon, Google, etc.  Some folks don't like those companies, or just avoid them for whatever reason.

[JayGatsby]

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/

[mwtorock]

:D that promotion made my day.

 

 

[Jurgis]

It's a good writeup, JayGatsby.  8)

[rkbabang]

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]

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.

[rkbabang]

This will help Roku and AppleTV

 

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

 

[DooDiligence]

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?

[LC]

I wouldn't count out the TV manufacturers. These devices are not hard to design and integrate.

[nkp007]

Great presentation by Elliot Turner on Roku.

 

https://38cjxsde635anttomvn6z8h-wpengine.netdna-ssl.com/wp-content/uploads/ideas19-elliot-turner.pdf

[gfp]

Roku TV built in to TCL televisions is a good product that we use for AirBnB rentals.  It allows us to have a single remote controlling the television and all of the streaming options.  No input selections for Apple TV, regular TV, chrome cast, etc..  Seems these TCL Roku TV's are the best option for outfitting a short term rental.

 

That builds growth in the platform and accounts (I have to have a Roku account to set up the TV).  But apart from whatever portion of the $140 TV purchase goes to Roku, zero money flows to Roku from my TCL Roku TVs.  They don't play ads, nobody watches Roku's own "channel", etc..

 

And, over time, you would expect Android TV or whatever google ends up settling on, to become a fierce competitor.  Building an OS to build into the TV itself was a smart move.  I just think people overestimate Roku's ability to make money off of these "platform" growth figures.

[rkbabang]

Roku must make something from the fact that you bought the TCL Roku TV, but you are correct no recurring revenue.

 

Earlier in this thread I mentioned I wish they sold a large screen dumb TV with a high quality screen.  I'd love a 65" high quality 4K screen as thin as it was possible to make it, with no speakers for sound, no TV tuner, and just 1 HDMI input nothing else.  Just a super thin 65" monitor with one input.  But this may be a reason that such a thing doesn't exist.

 

Taking the smarts out of smart TVs would make them more expensive

https://www.theverge.com/2019/1/7/18172397/airplay-2-homekit-vizio-tv-bill-baxter-interview-vergecast-ces-2019

 

 

Although I think I'd even be willing to pay extra for it, but it still isn't available.

 

[gfp]

Sounds like you want a computer monitor?  Just curious - what would you plug into your single HDMI port?

[rkbabang]

Sounds like you want a computer monitor?  Just curious - what would you plug into your single HDMI port?

 

The output from my home theater receiver.  My receiver has 5 4K HDMI inputs and one HDMI output which goes to the TV.  The receiver takes care of selecting the input devices and sending the sound to the speakers.

 

It's an old model from about 3 years ago, but it still does its job.

https://www.amazon.com/Denon-AVR-S710W-Channel-Receiver-Bluetooth/dp/B00ZIGUE8Y

[gfp]

Thanks that makes sense.  We have an almost identical denon receiver at home.  But at home we have 3 remotes..  :(

 

I set it up with that little microphone thingy on the paper stand that they give you.  Seemed to really improve the surround sound balance.

 

back to roku..  sorry for the digression

 

[nkp007]

Roku TV built in to TCL televisions is a good product that we use for AirBnB rentals.  It allows us to have a single remote controlling the television and all of the streaming options.  No input selections for Apple TV, regular TV, chrome cast, etc..  Seems these TCL Roku TV's are the best option for outfitting a short term rental.

 

That builds growth in the platform and accounts (I have to have a Roku account to set up the TV).  But apart from whatever portion of the $140 TV purchase goes to Roku, zero money flows to Roku from my TCL Roku TVs.  They don't play ads, nobody watches Roku's own "channel", etc..

 

And, over time, you would expect Android TV or whatever google ends up settling on, to become a fierce competitor.  Building an OS to build into the TV itself was a smart move.  I just think people overestimate Roku's ability to make money off of these "platform" growth figures.

 

What do you mean no one is watching the ads / The Roku Channel? How do you know?