Thread by @LSValue

$ROKU Long Thesis in a Thread:

Roku has a unique position in the Streaming or Connected TV (CTV) market. Roku at its core is an operating system for TVs or “platform” that allows average people an easily usable TV interface to access all of their streaming content.

1) Roku might work now, but is it going to be around in 5 years?

Through partnerships with TV manufacturers Roku is embedding their OS in 25% of TVs. Why?

Because it’s cheaper for manufacturers than developing their own OS.

2) Even if your TV comes with Roku, why won’t you just go straight to NFLX and not use Roku TV?

You can’t (very easily). If you have Roku enabled TV, your OS is Roku, to turn it off you either loss functionally or with some TVs it’s just impossible.

3) What about cheaper alternatives with better offerings like $NVDA shield?

Focus: Singular focused companies always have an advantage over multi focus companies

Cost: Roku can be run on cheap hardware

Ease of Use: Roku is super easy to use

Embedded Roku Tv advantage

4) How will Roku make money even if they are around?

Ad Revenue/ Data

Subscriptions: Roku gets a perpetual cut from subscriptions purchased on their platform. % of people that buy directly through their platform only growing over time.

On demand Movies/TV

5) Why now?

IMO Roku TVs will have a higher % of subscriptions and on demand items purchased through the app.

Active accounts gain confidence in the platform over time and are more comfortable purchasing through it.

Active accounts growth impressive.

6) So they can scale revenue but what about Gross Margins?

They are a true TV OS platform for CTV. Subscription revenue will scale at high margins. It’s basically perpetual referral fee paid from Direct TV Now or Hulu or other streaming service. Margins should be high.

7) Do they have a Moat?

It really still depends highly on how CTV evolves. Adoption so far has been solid, in part due to ease of use and low cost, but that could change.

7) How big are we talking here?

Current Active users: 27m
Active user growth: 40% y-o-y

Current NFLX subs (a proxy for streaming market size): 137m worldwide, 59m US.

Still a long way to go.

8) Major Risks:

•Competition is fierce, but not as Focused.
•Reveneue scale still early, margins and pace may be lower especially with Ads/Data
•Consumer preferences may change
•They may try to build too much content themselves eroding margins

9) Catalysts

•Adoption continues to grow.
•Platform revenues really starts to scale, specially ad revenue and subscriptions
•Mgmt is long term focused and will make good long term decisions
•Additional TV manufacturer partnerships
•M&A target