Roku (NASDAQ: ROKU) performed well in 2020. Shares of the streaming TV (CTV) platform are up more than 130% this year, outperforming Nasdaq and S&P 500. The platform has seen a big chunk in usage due to COVID-19’s stay-at-home measures, and investors are being rewarded for it.
But with this high-end valuation – Roku trades at a price-to-sale ratio of 25 – the company needs to find new ways to make money off its platform. One question investors should ask themselves is whether it has leverage over the video services that will use it for its circulation. Let’s find out if that’s true.
The evidence is clear
Last quarter, Roku had 46 million active accounts, up 43% from a year ago, and 14.8 billion hours were streamed on its platform, up 54%. These high double-digit growth rates show how fast the company is becoming critical to CTV. In fact, Roku now accounts for about 49% of the streaming device market, including Chromecast, Amazon Fire TV, and Apple TV.
Disney (NYSE: DIS) has worked extensively with Roku to help boost its Disney + offering by purchasing a button on tens of millions of remote controls (allowing one-click access to the service), using target capabilities the platform to find customers, and enhance the service on Roku home screen. This option seems to be, among other things, the reason that Disney was able to get +86.8 million subscribers a year after its launch.
Contrary to that to HBO Max, Warner Media ‘s new streaming service launched in May this year, it only reached a contract with Roku this week. This seems to be a major reason why the service has been used by 8.6 million people even though 28.7 million people pay for or access it.
What is Roku ‘s endgame?
While Roku may not be essential for companies like Netflix (NASDAQ: NFLX) or YouTube (which runs ads through Google’s in-house network), is becoming an essential partner for media companies migrating to CTV. As viewing content slowly moves from cable to internet-connected platforms, and streaming hours on Roku continue to grow, new streaming services will need Roku’s promotional tools to compete with Netflixes and Amazon Primes of the world.
For example, let’s say a future Major League Baseball decided to go directly to a customer with a $ 10 per month membership service, surpassing its traditional counterparts. For any product to be successful, it must be:
- Available on Roku, with the ability to subscribe directly from a consumer TV (from which Roku would get cut).
- Promoted on the Roku home screen, using the company’s advertising target capabilities.
- Advertised on ad-supported streaming services, Roku would, according to the service, receive a piece of.
This is a hypothetical situation, but this is HBO Max, Peacock, FuboTV (NYSE: FUBO), and others will come to an end at some point, even if activists do not yet understand it. Either that or their streaming services will have a higher chance of flopping.
While all of this should have invested anyone in Roku excited about what’s on the horizon, the company may lack company, at least compared to old-school cable carriers . Unlike Comcast (NASDAQ: CMCSA), a former user only option to access the cable package, users can access HBO Max a dozen different ways. This may limit the leverage Roku gets from content creators.
Active Accounts and Total Flow Hours are two numbers for Roku that investors need to monitor. Both are an indirect measure of the company’s competitive advantage over the video services on its platform, which we hope will translate into higher per capita revenue. long-term use. If not, or if growth in accounts and streaming hours start to slow down as the entire CTV market continues to grow, Roku may not be getting as much of a move as previously expected.