Roku: Biggest Hurdle Coming Soon


Roku: Biggest Hurdle Coming Soon

IPO lockup expiration comes in last week of March.

Class A share count could soar from here.

Will insiders take profits on the huge run?

While shares are well off their all-time highs, streaming media player Roku (ROKU) has been one of tech's better stories since going public last September. A strong first earnings report sent shares soaring as seen in the chart below, and the company's growth prospects remain quite strong. In the near term, the stock's biggest hurdle is coming soon, when insiders can start cashing out after the IPO lockup expiration date hits.


Like most newer tech firms, Roku has two classes of shares, which primarily allows founders and early investors to have substantial voting control. There are the Class A shares, which trade publicly, and contain one voting right per share. Also, there are Class B shares, which do not trade, but contain 10 voting rights per share.

As you can see in the chart below, shares outstanding for Class A, originally proposed to be about 15.7 million, are already getting close to 20 million. That number will rise naturally thanks to stock-based compensation, but also if Class B shareholders decide to convert. According to Nasdaq, the 180-day lockup period expiration is March 27th.


The reason why this situation is so interesting is because the 10-K filing showed just under 80 million Class B shares. That means a ton of potential dilution for Class A investors, even if only a small percentage of those shares are converted in the near term. Some insiders might want to lock in a profit, while others might just sell for personal liquidity or other reasons. When you have an IPO at $14 and a stock now at $40, I wouldn't blame executives, other insiders, or early holders for selling.

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