Slightly two years after your post, what do you think of Roku's current situation and potential performance? I see positive results in almost every area except in:
-Annual revenue per user stagnated for the past couple of years, despite increasing both revenue and active accounts. Reason? A substantial revenue drop these last 2 years. When looking at their MD&A, on the one hand they blame recent business and Macro factors, which impact both advertising spend and consumer discretionary spend. On the other hand they say "The decrease in ARPU is due to an increasing share of Active Accounts in international markets where we are currently focused on growing scale and engagement, rather than monetization of our streaming platform". Not sure what to think about this ambiguity.
-SG&A has also increased. Managers have addressed this and are determined to bring it down. However, a large part of this increase comes from a larger stock-based compensation, which is included here. Stock-based compensation-to-revenue ratio has jumped 55%-70% from previous years. This obviously affects the bottom line. Might we have here a bad corporate governance example?
-Restructuring costs. This should be a one-time 2023 expense though (and most of them are impairments, not lay-offs).
-Insider selling. Except a very recent stock purchase buy one director in the open market, it's not possible to trace a similar action back in time. Insiders are selling like madmen. They were selling when the share price was at the top and at this current price. Not a very promising omen.
Not too much differentiated insights. I sold my ROKU a while back and keep this post up for posterity reasons!
I sold ROKU for the reasons above. The company did not manage to find a way to differentiate their ad-targeting on their platform and therefore ARPU stagnated when other players (META/MELI/AMZN) all had success in ads via a differentiated offering with a successful two-sided network and that was where the problem lied in my mind: the publishers.
There are only like 5-10 big Publishers and nearly an equal number of CTV OS systems. Therefore even with a nice wedge, ROKU struggles to be a big winner because the value in the ecosystem does not lie within their area of the industry.
In my mind since, I have come to appreciate Netflix's ability to grow across platforms, dominate as a low-cost provider, and have the deepest organic library. All these create pricing power and negotiating power over players like ROKU.
Can't be a core holding but was an early lesson in my investing career!
Very nice content, William! Thanks for sharing!
Slightly two years after your post, what do you think of Roku's current situation and potential performance? I see positive results in almost every area except in:
-Annual revenue per user stagnated for the past couple of years, despite increasing both revenue and active accounts. Reason? A substantial revenue drop these last 2 years. When looking at their MD&A, on the one hand they blame recent business and Macro factors, which impact both advertising spend and consumer discretionary spend. On the other hand they say "The decrease in ARPU is due to an increasing share of Active Accounts in international markets where we are currently focused on growing scale and engagement, rather than monetization of our streaming platform". Not sure what to think about this ambiguity.
-SG&A has also increased. Managers have addressed this and are determined to bring it down. However, a large part of this increase comes from a larger stock-based compensation, which is included here. Stock-based compensation-to-revenue ratio has jumped 55%-70% from previous years. This obviously affects the bottom line. Might we have here a bad corporate governance example?
-Restructuring costs. This should be a one-time 2023 expense though (and most of them are impairments, not lay-offs).
-Insider selling. Except a very recent stock purchase buy one director in the open market, it's not possible to trace a similar action back in time. Insiders are selling like madmen. They were selling when the share price was at the top and at this current price. Not a very promising omen.
Any different insights on this?
Not too much differentiated insights. I sold my ROKU a while back and keep this post up for posterity reasons!
I sold ROKU for the reasons above. The company did not manage to find a way to differentiate their ad-targeting on their platform and therefore ARPU stagnated when other players (META/MELI/AMZN) all had success in ads via a differentiated offering with a successful two-sided network and that was where the problem lied in my mind: the publishers.
There are only like 5-10 big Publishers and nearly an equal number of CTV OS systems. Therefore even with a nice wedge, ROKU struggles to be a big winner because the value in the ecosystem does not lie within their area of the industry.
In my mind since, I have come to appreciate Netflix's ability to grow across platforms, dominate as a low-cost provider, and have the deepest organic library. All these create pricing power and negotiating power over players like ROKU.
Can't be a core holding but was an early lesson in my investing career!