- Fidelity recently raised Roku’s valuation by 35%.
- The streaming players’ vendor is the largest pure-play company in the market and one of the market leaders.
- The streaming market is expected to double in the upcoming years and the Roku IPO will enable investors to monetize that trend.
Video streaming has received a lot of attention lately as Yahoo (NASDAQ:YHOO) just recently shut down its original content production business, Google's YouTube started approaching studios to purchase the rights to TV series and movies, and Amazon (NASDAQ:AMZN) attracted a lot of criticism when it covered the New York subway with Nazi symbols as a promotion for its original series “The Man In The High Castle”. Unlike many other segments of online services, such as cloud storage and email, streaming is far from becoming a commodity, and the various players have a number of differentiating factors, which of course, Amazon is looking to work around.
On the content side, providers like Netflix (NASDAQ:NFLX), Hulu and Amazon produce original content to attract new subscribers, while on the hardware side of the streaming players, providers differentiate themselves in connectivity and wireless display technologies, resolution support, remote functions and ecosystems. As shown in the chart below, there are four major players in the market that control almost 90% it. Three of the largest four (Alphabet Inc-C (NASDAQ:GOOG), Amazon and Apple (NASDAQ:AAPL)) are tech giants with plenty of other revenue streams that use the media streaming business as a tool primarily to expand their ecosystem but also to create a stable growing revenue stream.
The media streamers market changed in the last few years when Apple, which used to dominate the market, did not release a new version of Apple TV between 2013 and 2015, Google launched its second Chromecast generation this September and Amazon Fire TV launched last year. Roku, which shares the market’s third place together with Amazon, is a seven-year veteran in the streaming market. However, unlike the other three leaders, Roku is a pure-play competitor with media streaming as its core business. As a long-time pure-play leading competitor, Roku is putting up a fierce battle against the giants and succeeding in monetizing the video streaming trend and growing with the market.
According to the market research company NPD Group, the penetration rate of the streaming players into U.S households will more than double from 16% in 2014 to 40% in 2017. This huge increase in demand makes the streaming market an attractive investment that has monetized the shift in consumers’ preferences from the traditional cable/satellite TV model to a streaming content model. While investing in Google, Amazon or Apple might seem to be a good way to benefit from the expected rise in the market, streaming revenues actually comprise only a very small portion of their revenues and the total sales or bottom-line figures are not directly impacted by the streaming results; thus the impact of streaming on stock price is weak.
As in many other tech trends, in order to monetize the emerging trend, investors need to invest in a leading pure-play company, most of whose business is impacted by the particular technology. In the streaming players market, this preferred company to invest in, is Roku. Roku is still a privately held company, although a Roku IPO has been tossed around the air a few times since the end of 2014. According to the WSJ, Roku is getting closer to profitability. However, the fact that it has reportedly filed a confidential S-1 suggests the company generates less than $1B in annual revenues, which gives it the right to file a confidential S-1.
One of the latest investors in Roku, mutual funds company Fidelity, attracted a lot of attention lately when it reevaluated its private investments, lowering the investment value of Dropbox and Snapchat. However, while Fidelity slashed the valuations of many tech unicorns, the investments giant raised its valuation for Roku by 35%, presenting great confidence in the small streaming company during a tough period for private tech companies.
As the recent months were difficult for tech unicorns that went public, Roku will probably wait for the stabilization of the tech IPO market before filing its S-1. It is hard to assess Roku financially, since, unlike many other private companies, Roku have not disclosed any financial figures about the company, which makes its valuation, annual revenues and even growth pace unclear. However, as a prominent player in a rapidly growing market with enormous potential, investors should look for the Roku IPO.
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