Discussing Our Roku Valuation with Nick Grous and Andrew Kim

Please note: as of 3/31/22, ARK’s clients own greater than 1% of the shares outstanding of Roku Inc.
We believe there’s a major shift taking place in the TV ecosystem in terms of people moving from linear (cable) TV to connected (streaming) platforms and it’s only going one direction. The advertising world hasn’t quite caught up; In Roku’s first quarter earnings call, CEO Anthony Wood reiterated that US audiences spend 46% of their TV time on streaming while advertisers spend only 18% of their TV ad budgets on streaming.[1] We believe there is an enormous investment opportunity here, and in today’s episode we are going to be talking about why we believe Roku, the only purpose-built operating system for TVs today, is positioned to be a prime beneficiary of the shift from linear to connected TV. Tune in today to hear our predictions for the next five years, the factors required for our thesis to crystalize, exciting developments taking place at Roku, and more! You can read the full Roku valuation blog here: ark-invest.com/articles/analy....
Key Points From This Episode:
- An overview of what Roku is.
- How the TV ecosystem has shifted.
- The drop that we expect to see in the number of households using cable/broadcast (linear TV) in the US in the next five years.
- The number of households that we expect to be using connected TV (streaming) in the coming years.
- The mismatch between advertising dollars spent and engagement in the streaming space.
- A comparison between the amount of advertising dollars spent on connected TV and linear TV.
- How we predict global and US advertising spending will change in the next few years.
- Three key variables that our assumptions about Roku’s future depend on.
- How we expect Roku’s daily hour stream per account metrics to change by 2026.
- Roku’s approaches to driving revenue dollars.
- Live sports; what we believe to be the linchpin holding the linear TV advertising space together.
- The growth that we expect to see in global digital advertising spending by 2026.
- Why we think connected TV targeting can improve but linear TV targeting cannot.
- Our calculations of Roku’s gross platform monetization rate.
Read full disclosures here: ark-invest.com/podcast/discus...
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Benefits of the Roku Pay offering (that we are monitoring very closely).

[@ARKInvest2015]

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[@shutosham]

Amazing analysis of connected TV space v/s linear but what is not clear how a company like Roku would stand up to Apple , Amazon and Google ! ..

[@mustavogaia2655]

22:00 - how many years had youtube, google, twitter, FB have to perfect targeted ads. I am still amazed by how poor are the ads that appear to me. Ive lost the number of times I blocked the same ad on youtube.

[@alex6188]

I love my Roku! It's way better than fire TV and Google TV.

[@yomommagotass751]

How does it overtake Netflix/Apple TV?

[@nathanhyatt5869]

Roku could be a beast but honestly it’s at a 9% allocation right now. Would rather see that position cut in half but I trust this team.

[@oyh4680]

Thanks for taking the effort to share!

[@Rainn2407]

Ohhh I instantly clicked this, excited to watch

[@KL-nj9oe]

I've been slowly accumulating ROKU. After watch this excellent analysis, I will be adding more a little faster.

[@andrelagemaat]

That s not really smart Of you 😂

[@mustavogaia2655]

5:10 - isnt the minutes viewed in streaming related with the lack of ads? I mean, I might no make sense to add ads on streaming if this mean that the viewership would drop.

[@alex6188]

Ads means lower cost to customers. That's why Netflix is adding ads.

[@mustavogaia2655]

@@alex6188 That is not my question but ok. And will ads revenue compensated the streamer for the lower RPU? One of the reasons people "cut the cable" was exactly becuse they weere paying 3digits for packages and still getting ads.

[@alex6188]

@@mustavogaia2655 viewership would not drop. It would increase because the cost is lower. Idk about the streamer but this would benefit Roku bc they will now get a take rate vs nothing at all. Streaming is so much better than cable bc customers can get free content with ads vs paying 3digits and still seeing ads.

[@mustavogaia2655]

@@alex6188 Ok, thanks. It is still to be confirmed if more household getting the streamer on a lower price point will mean better revenue - total and per user - to the streamer. But the end goal to some streamers is not to provide media content but to serve as the household operational system for any purchase. I mean, if Hulu goes into on channel transacttions, soon they will compete with amazon prime for consumers for products different to media content.

[@doughayden]

I'd look at the KZbin model for an answer. Already working and taking in Billions

[@sorenos]

@4:30 he says they expect connected tv to grow from 108 to 149 million households in the US. How many households are there in total? Us Census Bureau says 122 million in 2020 :/ What?

[@andy-for-real]

guess he's referring to 2026 projection. Roku 2022Q2 reported 63m accounts, not sure if ARK applies simple multiple as household count.

[@aditussomnus]

Roku works really well, way better than Chromecast but I still prefer Fire TV. 🤷‍♂

[@alihusainmd]

From the future active accounts here it's 2023, active accounts are growing at 18% a year. Unclear how much of the advertising spend is going to smaller screens vs traditional big screens going forward. Growth trajectory may be a little agressive.

[@doughayden]

Great insights into the Roku model. Love that Ark shares the research and the numbers. I'm putting together a pitch deck for nitch markets to produce branded content for OTT and CTV platforms ... you made my day Gents!

[@jinghuiniu7335]

Which companies/sectors are big buyers of legacy linear tv ads only but no streaming tv ads? Those stubbon companies must be taking kickbacks and need to be boycotted.

[@teslanewstonight]

Can a product like Roku be used in a vehicle? 🤖🧡

[@qris4165]

Roku is amazing

[@tonyfc8809]

but why ROKU over it's exact competitors

[@alex6188]

-The Roku channel. -Over the air updates (yes some smart TVs can't receive updates over the internet and can lead to apps no longer being supported) -TV manufacturers choose Roku OS because it requires less expensive hardware to run translating to higher margins.

[@tonyfc8809]

@@alex6188 thanks man

[@peters972]

I feel like tv killed advertising by getting greedy and just doing too much of it. I could not believe how many ads I was supposed to watch just to enjoy one movie. Many of the ads were repeated and irrelevant. It became ridiculous, patronizing, and frankly made me get so angry that I vowed to either rent a video (lol back then) or read a book. They passed a threshold at which I was not willing to have my mind erased and my time waisted. Therefore I began to hate advertising. TV just got too greedy. Those same forces are at work to ruin the internet. Even the ads at the Super Bowl which are second to none start to become just too much emotional rollercoaster and also make one feel the brain is being erased. You have to feel every emotion known to man for 30 seconds, then agin for the next ad, and so on. It takes things that are precious and converts them to sentimental slush. No wonder adhd is on the rise. I will always and forever seek ways to avoid ads. Until I’m stuck in an old age or mental home I guess, lol.

[@KhoiNguyens]

should've been shorting it for past year...would've made a killing.

[@brianfong5711]

but people don't want to see ads... on tv, theat's why they switched

[@DaBooster]

I didn’t realise ark does comedy

[@alex6188]

What's so funny?

[@danielcyr6489]

hes so young, im worries

[@BTLM1917]

Comical, RIP to ARK

[@tonyfc8809]

I wouldn't bet against Cathy Wood....

[@BTLM1917]

@@tonyfc8809 you would be up a lot if you did, instead down with her lol

[@tonyfc8809]

@@BTLM1917 I actually sold right after the peak bc of market....now I'm scaling back in....

[@toomainstream]

Such a long-winded, thorough rebuke! Bravo

[@omarmiz]

Nah no one died, it’s called a market cycle. Smart money is accumulating ARK funds now

[@charlespetee8576]

TV is dead... ARK doesn't understand consumers... Oh well.

[@alex6188]

Linear TV is dying. Streaming is where it is and going.

[@charlespetee8576]

@@alex6188 Cord-cutting with no subscriptions is where it is and going. Lots of money to be made investing elsewhere as I am also doing. Hope you are as happy invested in ARK as I am elsewhere...

[@alex6188]

@@charlespetee8576 I agree. That's why Netflix and Disney plus are adding AVOD.

[@tonyfc8809]

@@alex6188 Cord cutting with no subscriptions is ROKU

[@thegodhead]

@@charlespetee8576 are strictly clicking and commenting to naysay, then?

[@Justin-qz9rs]

Roku is selling junk smart home stuff like cameras. I just don’t buy that they have a bright future

[@famip3679]

Coin base lol

[@cameronvincent]

Wow adds innovation at its finest I remember when ark said Netflix was worth more then 400$ a share because it was yet to capture the global market. And now you are saying the same reason for Rokus growth How is roku innovation when screen sharing on my phone makes their technology useless

[@toomainstream]

How are you screen sharing? Are you going to be able to fully appreciate 144hz/4K on your cell phone to the television?

[@toomainstream]

Also, to be clear - they did sell most of their holding in Netflix in February when it was around $400, and Netflix is more than just a streaming company it is an infrastructure company. The sheer amount of bandwidth consumed, load balancing in place, and storage is ridiculous - and concepts used by enterprise businesses like chaos engineering can be attributed to them as well.

[@echutson]

KZbin tv is much better. On a Roku on a pc on a phone.