Company / division: Roku
Roku has announced updates to pretty much its entire hardware line, just days after very successfully going public on the NASDAQ. The new range of devices is mostly priced the same, with the exception of the top tier, which has dropped $10, leaving the price range at $30-100, while the other notable change is ever smaller devices, with most of the line now actually plug-in sticks or very close to the same size. Roku promises increased speed through better processors, wider 4K support, and other hardware changes. But it also debuted version 8 of its Roku OS, which includes better support for integrating antenna-based viewing of over-the-air channels, something which has become increasingly common as a complement to online streaming of cable channels among cord cutters. As with recent changes from Amazon, these improvements and price tweaks further separate the three market share leaders from Apple and its new Apple TV boxes, which now start at $50 above any other box from the three major competitors and rise to twice the highest price of a Roku device. I continue to believe Apple can carve out its own niche in this market, but it’s certainly never going to have substantial share as the rest of the market shifts towards cheaper sticks, often sold at or below cost. That’s a market Apple simply isn’t going to compete in.
via The Verge
Roku IPO Sees Stock Rise Over 50% on First Day (Sep 28, 2017)
Roku went public on the NASDAQ today after filing its S-1 earlier this month with the SEC, and saw its stock pop on its first day of trading, rising from its $14 opening price to as much as $23 in the middle of the day before falling a little, settling in at around $21 at the time I’m writing, about a half hour before markets close. That’s a great start for Roku, which was far from a shoo-in as a consumer tech IPO given its big business model pivot, its losses, and the fact that it competes against three of the biggest names in consumer tech in Amazon, Apple, and Google. Other big consumer tech IPOs this year haven’t fared well, notably Snap Inc’s, but the main reasons for the poor stock performance have been grounded in poor company performance, so we’ll have to see how Roku fares in its first couple of quarterly reports, with the first one likely coming a month or so from now. To commemorate the Roku IPO, I added a Roku deck to the Jackdaw Research Quarterly Decks subscription service today, and will be recording a video voiceover for the deck shortly (a discount is available for those who buy both subscriptions, so contact me if you’d like the discount code for that).
Variety’s Janko Roettgers has been putting two and two together in the form of various job postings and LinkedIn profiles and posits that they add up to Roku working on a smart voice speaker, likely to work alongside either its own hardware or its platform partners’ TVs. The context, of course, is both Apple and Amazon offering voice interfaces for their TV boxes, while Roku’s own efforts are fairly thin in this area. Janko suggests Roku might be working on a companion device which could be sold as an accessory to TVs, but the functionality could presumably also be built into Roku’s own TV boxes in future. Voice control of TVs is starting to become a bigger deal, with not only Amazon and Apple’s direct efforts, but Chromecast integration with Google Home, and third party partnerships like DISH’s integration with Alexa, which is supposed to be very good. Comcast, too, offers pretty decent voice features on its X1 set top box platform. So, even though Roku’s focus going forward is less on hardware and more on its platform, it realizes it needs to build certain hardware features if it’s to remain competitive. I would argue, though, that this doesn’t require Roku to build its own voice assistant, and it would probably get to market faster with a better product by building on top of Alexa, although of course that means ceding some control to one of its biggest competitors. Alexa is, at least familiar to many users, whereas Roku would be starting essentially from scratch, with no potential at all for creating an assistant people could use outside their living rooms.
In related news today, Roku has raised its IPO target, now planning to raise $252 million, up considerably from the first figures it released with its S-1 filing.
Roku today made public its S-1 filing with the SEC as the first step towards a long-awaited IPO. I’ve been tweeting charts and nuggets from the filing for the last couple of hours in this thread, but I’ll provide a brief summary here. The long and the short of it is that Roku is growing at a decent clip, is currently unprofitable with little sign of that changing, and is in the midst of a big shift in its business model. Whereas for most of its history selling its streaming boxes has been its core revenue stream, it’s recently added a platform licensing business, but that’s not actually where its new revenue streams are coming from. Rather, it licenses its platform very cheaply and monetizes usage by taking a cut of certain subscriptions sold through its platform and serving up ads. It’s the latter which is a surprisingly important part of its business model (though there have been signs of this shift) and which is a major focus of much of the text in the S-1 filing. Last year, this advertising and subscription revenue share was nearly $50 million out of its $400 million in total revenue, and half of its platform revenue, and that accounted for essentially all of its growth in 2016. In that sense, though Roku on paper looks like principally a hardware company, it’s in some ways more like a Facebook or a Google – a company that collects millions of data points on its customers (18TB of uncompressed data per day) and will use that to target advertising. In that sense, Roku is an unusual player in the streaming space, given how many modern streaming services eschew advertising, but sees itself as a key beneficiary of the move of TV advertising dollars from traditional channels to streaming. This is going to be a fascinating IPO to watch and I’ll have plenty more analysis on Roku in the next few days.
Roku Said to be Preparing 2017 IPO (Jul 13, 2017)
This is another example of Roku’s inevitable move into gathering more data from its devices and using those to both serve up recommendations and potentially help target advertising. Last week, I covered a piece about Roku offering to target specific demographics among its user base, and this week Roku says it’s going to track the video its users watch through the inputs to its smart TVs and offer up recommendations. Presumably, it’ll also use that data to help build profiles on users for those ad offerings. Though this article suggests it will only use this technology to track what users are watching through inputs, it can of course already see what users are watching through its smart TV interface already, so users shouldn’t assume that that activity won’t be tracked too (and likely already has been for some time). As we’ve already seen with Vizio, this kind of tracking is often non-transparent to users, as is the ability to opt out, so Roku is going down a somewhat risky path here, and one which will likely set it apart from Apple, which uses any tracking exclusively for recommendations and not for advertising purposes (Amazon’s stance here is less clear as it builds up its ad business).
Roku Offers Guarantees to TV Advertisers – Multichannel (Apr 3, 2017)
Roku is going to start selling the ability to target specific demographics with advertising, and therefore claims to be replicating the traditional TV ad buying model more closely than most other online platforms. Roku already sells some ads for certain channels on its devices, and this is part of an effort to beef up that part of its business. It appears that part of what will enable Roku to do this is a two-year-old partnership with Nielsen to measure demographics and match them with Nielsen’s own. A big barrier to content owners putting more content onto online platforms has been the inability to measure and monetize audiences, so if this new offering is successful, it should help alleviate those fears, on Roku devices at least. But of course this also raises issues around privacy and tracking, and it will be very interesting to see how Apple and Amazon play in this space, especially given that Apple is generally data- and tracking-averse when it comes to user behavior, especially at a granular level.
Roku Got Close to $400 Million Revenue in 2016 – Variety (Feb 28, 2017)
Roku has to be pretty much unique as a small standalone player which nonetheless dominates a market in which major ecosystem players also compete. Taking 48% share (per Nielsen) against a combination of Amazon, Apple, Google, Microsoft, Sony, and others is quite the achievement, and it’s especially remarkable given that Roku really doesn’t have any unique features or much unique content at this point. That’s the power of being an early player and one of the most open ones in a market where some of the big ecosystem players have been later to the game and/or offered more closed systems. I’m not sure how sustainable this position will be over the longer term, and that’s why Roku has already begun pivoting to the smart TV licensing model as an alternative to the standalone set top box.
This announcement was very well timed given the apparent death of FCC set top box reform reported earlier today. Comcast has argued all along that market forces will bring the choice in set top boxes consumers want, and this announcement is a useful token of that vision. It’s limited – it’s Roku only for now, and customers still have to have an old-style STB in the home as well until later this year. It also appears customers will still have to pay something for the privilege of using a box they own rather than one of Comcast’s. This is progress of a sort, but very much the kind of progress the cable companies are willing to go along with – with control, fees, and more still in place to some extent. The more interesting question is whether Comcast might use this experiment as the basis for a broader rollout of over-the-top Xfinity TV services outside its footprint – that would be far more disruptive.
Roku Mobile App Relaunched With New Program Guide – Variety (Jan 17, 2017)
Discovery has been one of the biggest challenges in TV in the present era. There’s simply so much to watch, and so many ways to watch it, that the old interactive programming guide for live, linear programming simply doesn’t cut it anymore. Netflix has been a master of recommendations for ages now (and famously sponsored a big prize to improve its engine even further), but a variety of others have been working on this too, with Roku the latest. Interestingly, in contrast to Apple’s approach, this feature lives in the mobile app and not the main on-screen user interface, though I wouldn’t be surprised if it arrives there too sometime soon. Of course, the quality of the guide can only ever be as good as the partners that choose to participate – Netflix is a big holdout for the Apple TV app, and as far as I can tell it’s absent from the new Roku feature too.
Roku has done well with standalone players in the past, but is also doing increasingly well in the smart TV space as a platform vendor. It claims 13% share of smart TV platforms in the US, and its TCL partnership seems to be really paying off. With Amazon also entering the market, this is going to be an increasingly competitive space, but it seems more and more TV vendors (with the notable exception of Samsung) are willing to consider outsourcing rather than owning the platform and interface.