Roku: Intriguing, But Don't Buy Until It Plugs These Holes
Roku is increasingly seen by bulls as a potential power in the revolution of TV advertising, generating revenues in its Platform segment.
Roku has potential, but this enthusiasm is premature. The platform does not currently gather as much data as other platforms or monetize it well.
The company's claim of unique access to an underserved population left behind by pay-TV is also somewhat questionable, since YouTube almost certainly serves that exact same segment with superior targeting capabilities.
Roku (NASDAQ:ROKU) stock has fallen following the release of the company's third-quarter earnings, and several Seeking Alpha contributors have already written articles offering some excellent analysis of whether this dip represents a buying opportunity or the beginning of a longer decline.
This article will not be nearly as comprehensive, rather I want to narrow in on one specific aspect of the company’s performance: advertising. Many of the bullish arguments around Roku center, in substantial part, on its potential to become a major TV advertising power.
The purpose of this article will be to highlight some of the components that are currently missing from the company’s strategy if it wishes to achieve this, and the prospects of plugging those holes.
A Company In Transition
Roku is in the middle of transitioning its business to a platform-based model, away from hardware, which actually saw a 2% decline in revenue the first half of 2017. Meanwhile, platform revenue is growing strongly, and is seen as key to the business going forward.
Contributor General Expert has already written a strong and well-researched piece on the potential upside for Roku. The whole article is definitely worth a read, but in a nutshell, they see strong potential for the company owing to its platform business, with any profit on hardware sales as pure gravy. They emphasize that Roku is a low-fixed cost business, since it outsources hardware construction and earns positive margins on hardware sales. They see ad sales and subscription revenue sharing as the principal components of the platform revenue, with advertising taking about two of every three of those dollars.
source : https://seekingalpha.com/article/4152051-roku-intriguing-buy-plugs-holes
Roku has potential, but this enthusiasm is premature. The platform does not currently gather as much data as other platforms or monetize it well.
The company's claim of unique access to an underserved population left behind by pay-TV is also somewhat questionable, since YouTube almost certainly serves that exact same segment with superior targeting capabilities.
Roku (NASDAQ:ROKU) stock has fallen following the release of the company's third-quarter earnings, and several Seeking Alpha contributors have already written articles offering some excellent analysis of whether this dip represents a buying opportunity or the beginning of a longer decline.
This article will not be nearly as comprehensive, rather I want to narrow in on one specific aspect of the company’s performance: advertising. Many of the bullish arguments around Roku center, in substantial part, on its potential to become a major TV advertising power.
The purpose of this article will be to highlight some of the components that are currently missing from the company’s strategy if it wishes to achieve this, and the prospects of plugging those holes.
A Company In Transition
Roku is in the middle of transitioning its business to a platform-based model, away from hardware, which actually saw a 2% decline in revenue the first half of 2017. Meanwhile, platform revenue is growing strongly, and is seen as key to the business going forward.
Contributor General Expert has already written a strong and well-researched piece on the potential upside for Roku. The whole article is definitely worth a read, but in a nutshell, they see strong potential for the company owing to its platform business, with any profit on hardware sales as pure gravy. They emphasize that Roku is a low-fixed cost business, since it outsources hardware construction and earns positive margins on hardware sales. They see ad sales and subscription revenue sharing as the principal components of the platform revenue, with advertising taking about two of every three of those dollars.
source : https://seekingalpha.com/article/4152051-roku-intriguing-buy-plugs-holes
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