Roku dominates the streaming market and rides the connected TV advertising wave

Says no one ever. But what they do want is a Roku box with all the streaming services.

On Feb. 18, Roku, the streaming device provider, released its fourth-quarter earnings report:

• $649.9m sales, up 58% from the same period last year
• $63.7m profit compared to $15.7 loss in the same period last year

Better than TiVO

Founded in 2002, Roku sells devices that plug into TVs and offers various streaming services (i.e. Netflix, Disney) and other channels. Similar to how Microsoft/Apple is the operating system for computers, Roku is the operating system for TVs.

Today, Roku has become the dominant US streaming provider:

• 38% of all smart TVs sold in the US used Roku’s operating system
• 5% of streaming devices were provided by Roku globally

In 2017, Roku launched its own Roku Channel, a free TV app that offers movies/shows. Unlike other paid streaming services…

• Roku Channel is free and is supported by ads — which makes up most of its sales today
• Roku licenses content from other networks instead of producing its own

This model has been working out for Roku… Since its IPO in 2017, Roku’s stock has grown over 17x.

All those cable TV ads had to go somewhere…

It went straight to digital platforms and created a new industry — connected TV (CTV) advertising. Compared to traditional TVs, advertisers can now deliver targeted ads unique to each viewer through internet-connected TVs.

In 2020, the CTV ad industry grew 27% to an $8.1b industry and is expected to double to $16b within 2 years. This helped accelerate Roku’s sales — which grew by 28% (2017), 44%(2018), 52% (2019) and 57% (2020).

In under 4 years, Roku grew a $1.2b ad business from scratch which now makes up over 70% of its total sales…

For investors… Keeping up with the momentum

Lockdowns benefited Roku and other streaming providers but what comes next in a post-COVID world? There are two main factors that could work in either direction:

• The bull case: Roku continues to benefit from the growth of CTV advertising adoption
• The bear case: Roku would likely see a drop in sales and subscriber growth post-COVID.

The main thing that fuels these growth stocks… More growth. Roku may have exceeded expectations this earnings report but if they report any signs of growth slowing in future earnings, its stock could fall — like many others already have…

Learn more: Zoom was a big beneficiary of COVID, but now it’s down 25% from its 2020 peak.