Roku Aims for $252 Million for its IPO

We’ve all been warned that the death of cable is imminent.

We’ve also been told that within the past decade, more people and more people have been “cutting the cord.” Instant streaming companies like Netflix have been playing a huge role in the unfortunate demise of cable while also bringing the convenience of instant streaming to households everywhere.

Steaming services offer entertainment without the expensive hassle that tends to come along with traditional cable TV, like cable providers increasing the amount you pay for your cable subscription and making it seem like you’re indebted to them for the rest of your life.

The convenience of picking when and what you want to watch seems like an obvious concept that you’d think would have been conceived a lot sooner. 

Regardless of how long it took for the concept to make its way into our homes, it’s here, and it’s caught on.

And for most consumers, it’s become the better choice.

Goodbye Cable, Hello Instant Streaming

There are companies, like Netflix and Hulu, that provide the individual application that makes it possible to instantly watch shows and movies.

Then there are companies that provide devices that allow users to stream multiple apps on the same device.

You might have heard of some of these devices — Google (NASDAQ: GOOG) has its streaming device called Chromecast, Apple (NASDAQ: AAPL) has its Apple TV, and Amazon (NASDAQ: AMZN) has its Fire TV Stick.

The one inconvenient thing about instant streaming is the multiple platforms we have to use in order to stream the entertainment we want to watch. Netflix has partnerships with certain networks and movie studios, and the same goes for Hulu. So sometimes you need to subscribe to more than one of these apps to stay caught up on the shows you would normally watch on cable.

These devices, like Chromecast, Apple TV, and Fire TV Stick, conveniently collect the multiple apps you might be using to stream your favorite TV show so you don’t miss any episodes.

Another device that has been gaining steam in the instant streaming realm comes from Roku.

Roku has been a pioneer in digital streaming since 2002 and is headquartered in Los Gatos, California.

Compared to its competitors, Roku is the fourth largest multichannel video programming distributor in the U.S., with 13.3 million subscribers as of June 30, 2017.

Roku has recorded that in the first six months of 2017, its users have streamed more than 6.7 billion hours on its platform.

This fairly new business model of instant streaming continues to disrupt cable companies and has begun to shift billions of dollars into the growing market of video streaming.

Users, content publishers, and advertisers are creating huge revenue opportunities for the digital streaming market, along with the companies that have already carved a place for themselves in this expanding sector.

Roku brought in $399 million in revenue in 2016, but it also lost $43 million. This is compared to the $320 million in revenue and $38 million in losses during the prior year.

So far the company has only recorded one profitable quarter, the fourth quarter of 2016, when it reported a net income of $3.2 million.

Netflix is responsible for a third of the streaming traffic on Roku’s devices, which amounts to close to an hour of streaming in a day. Roku hasn’t been able to make any revenue from that traffic like it does with other platforms. However, if Netflix is no longer associated with Roku’s devices, that could limit the device’s appeal to consumers.

And that’s something Roku will have to consider very soon, since Netflix’s contract with Roku is coming up for renegotiation.

Roku Is Set to IPO

Roku has been a private company, but it is now ready to start selling its shares to the public.

The company set its IPO date for Thursday, September 28, 2017. It plans to sell 15.7 million shares and will be pricing shares in the $12 to $14 range.

Roku will list on the Nasdaq with the ticker symbol “ROKU,” and it is backed by Morgan Stanley, Citigroup, and Allen & Co. as its IPO underwriters.

Earlier this month, Roku was forecasting $100 million from its IPO, but it announced on Monday, September 18th that it hopes to earn $252 million from its public offering — double the amount initially forecast for its IPO.

If Roku prices its shares in the midpoint range, it could very well see a valuation around $1.2 billion.

Roku’s founder and CEO Anthony Wood plans to hold a 27.3% stake in the company’s stock, and he’ll also have 32.1% of voting power.

This kind of ownership model isn’t typical for most publicly traded companies; however, it’s starting to become more common among technology companies. Google, Facebook, and Snap have all incorporated a dual-class stock structure to ensure that the company has significant influence over management and situations that involve stockholder approval.

Roku will be emerging onto the public market to compete with some huge tech companies like Apple, Alphabet, and Amazon. That said, don’t discount Roku’s ability to stay in competition with these big companies…

According to a recent report from market intelligence firm Parks Associates, in the first quarter of 2017, 37% of streaming devices in U.S. households were Roku devices.

Meanwhile, Amazon’s Fire TV Stick devices had 24% of the market share, Alphabet’s Chromecast had 18%, and Apple’s Apple TV was behind with only 15% of the market share.

Roku’s business plans are solely focused on the digital streaming market, and because of that the company has the opportunity to stay in the lead.

Roku carries some promising prospects for investors, but it does need to focus on bringing in future profits while also maintaining its position as a market share leader. Of course, only time will tell how well Roku’s IPO goes.

Until next time,

Monica Savaglia
Wealth Daily