- If you want exposure to the streaming movement, Roku is a pure-play.
- Despite the competition, Roku’s market share is still terrific.
- There is a potential Coronavirus ad-dollar shift that could benefit aVOD services.
- Smart TV growth likely increases Roku’s client pool for ad serving.
It’s very clear that Roku is, indeed, in the ad business and the hardware business is just the hook. Platform revenue continues to increase both from a profitability and a percentage of a revenue standpoint, while hardware (player) revenue goes down.Source: 2019 form 10-K
As just one of several platforms in the ad-supported streaming business, Roku has competition from other aVOD platforms with big name backing. What makes Roku the easier aVOD investment to me is that it is hands down the most focused on that strategy compared to its bigger competitors.
|Tubi TV||25 million||$24.7 million*|
|Pluto TV||22 million||$150.0 million*|
|Hulu||29 million||$1.9 billion|
|Crackle Plus||23 million||$50.0 million**|
|XUMO||10 million||$35.0 million*|
|Roku||36 million||$1.1 billion|
There are several ad-supported free streaming plays but to my knowledge only two companies give you the leveraged approach to aVOD exposure. Roku and Chicken Soup. Regarding streaming as an investable consumer trend, many of the companies entering the space now have considerable business operations outside of streaming. In most cases, these other operations are in jeopardy because of streaming. To be clear, I think content owners will ultimately be fine. But there is a cannibalization effect in the direct-to-consumer streaming movement that Roku doesn’t have to deal with. Market share and the importance of data
The simplicity of ROKU is probably why Roku still has considerable market share. Courtesy: Strategy Analytics
Anecdotally, my parents are in their 60s. It took a while, but last year, they finally cut the cord. What made the cord-cutting process easy for them to understand and adopt was the Roku express stick. The ease of use and the simplicity of the operating system were essential for them to grasp how the rest of the world is now consuming media. Now there is no going back for them. Roku is what they like and it’s what they plan to use until further notice. Even still, user growth is great.
Roku is using dataxu solutions to put industry-best data, premium inventory and measurement tools in the hands of advertisers.
This is a company that appears perfectly positioned to utilize data and consumer insights for targeted, lead-generating campaigns. When we begin to view Roku not as just a distribution company or an advertising company, we can quickly see how valuable Roku can be as a data company for advertisers.COVID-19 could actually be a tailwind
When times get challenging, people often turn to TV to either make sense of things or get some much-needed distraction. Early Nielsen returns show a TV usage increase of 22% in the Seattle/Tacoma metro. In the past, violent weather situations have boosted TV viewing significantly in the markets dealing with the impact of the storms.
When Hurricane Harvey hit Houston in August 2017, for instance, Nielsen’s analysis found a 56% increase in total TV usage during the impacted period compared with the preceding period. And during the severe snowstorm that hit New York on the weekend of January 23, 2016, total TV usage was 45% higher during the Saturday of the snow event compared with the Saturday before.
The COVID-19 pandemic figures to have a very large impact on TV usage for a considerable amount of time. If Seattle is our first indication of what is to come, those usage figures could trend very high very quickly for the entire country. And frankly, there is only so much COVID-19 coverage a typical person is likely able to handle. When people are stuck in their homes for a long period of time, it stands to reason that streaming will be a beneficiary.
It is very clear the economy has come to a screeching halt. If the Coronavirus pandemic drags on for months, as has been hinted, US consumers are likely looking at layoffs. As more people who can’t leave their homes lose their jobs, budgets will be examined and costs will be cut. One of the biggest, easiest cost-cutting decisions ever made in my household was cable. Are we about to see an acceleration of cord-cutting? It’s possible. If that happens, people are likely to turn to the free, ad-supported platforms. This puts Roku in the advantageous position of being both a distributor and seller in this kind of advertising model.
Conventional wisdom suggests advertisers slash marketing budgets in a recession. This has certainly been true in the past. In fact, early estimates suggest media companies are staring down billions in lost revenue from losing sporting events alone. But it’s possible that some of the big money previously booked in live sports programming gets repurposed. Tim Peterson from Digiday hypothesizes that the live sports money could get shifted to the streaming space.
But even beyond offsetting the loss of live sports, advertisers that have bought some streaming ads in the past are looking to move more money into this market as people huddle in their homes and are more likely to spend time streaming shows.
I happen to agree with this hypothesis. Two of the best ways to reach younger viewers who are in-market for consumer products are through live sports or streaming. Live sports are now on the shelf for the foreseeable future. That leaves streaming. In that space, there are only a few invest-able, ad-supported plays and I believe Roku is the best option.
Though advertising is the growth area for Roku, smart TVs are a big growth area for streamers. That is why making deals with smart TV manufacturers is a good sign. The company announced new and expanding partnerships with TCL, Westinghouse, Hisense, and Funai at CES earlier this year. It adds Roku’s potential reach to what was already an impressive partnership list that includes Phillips and RCA.Source: ComScore State of OTT, 2019
I view Roku as the best pure-play in the streaming space moving forward. I take this view because of strong market share, programmatic advertising potential, and boosts in COVID-19 consumption leading to a big shift in ad dollars. As the title states, I am simply scaling in.