Roku Commits to IPO as It Takes on TV Titans

Spun out of Netflix in 2008, Roku wants to be as revolutionary as its one-time owner to the TV-watching public, but it'll need plenty of capital to achieve its goals.

That's why, late last week and after months of speculation, the Silicon Valley-based company finally filed papers with the Securities and Exchange Commission signaling its plans for an initial public offering. The "place holder" amount for that IPO is down as $100 million, but the target could change depending on the appetite for its stock. (See Roku Gunning for $1B IPO – Report and Roku Prepping for IPO – WSJ, NYT.)

Roku's master plan is to play the same role in the video streaming business that Google's Android operating system plays in the smartphone market. Its highly-regarded platform lets customers watch video services from a number of different providers, including Netflix Inc. (Nasdaq: NFLX) and Amazon.com Inc. (Nasdaq: AMZN). In future it hopes most consumers will use its technology to access such services. Proceeds from an IPO would help it to realize that ambition.

Because it does not have its own subscription service, Roku Inc. has been able to position itself as a "neutral" player that is not competing with those providers. Its technology expertise, and success at generating sales through advertising and direct billing, has already fueled interest. In it recent SEC filing, Roku claimed to support 5,000 streaming channels in the US and more than 3,000 internationally.

Consumers have flocked to the Roku platform. At the end of June, it had more than 15.1 million accounts and ranked as the number one TV streaming platform in the US based on total hours streamed, according to a survey by Kantar Millward Brown (which it commissioned).

"The user interface generally seems to rate well on things like search and navigation and how easy it is to set up favorites and customize it," says Aditya Kishore, the practice leader of video transformation at the Heavy Reading market-research group. "And the average streaming box user is usually a little more tech savvy -- and therefore demanding of the technology -- than average TV viewers."

Want to know more about the impact of Web services on the pay-TV sector? Check out our dedicated OTT services content channel here on Light Reading.

Until now, revenues have mainly come from the sale of Roku players -- sticks and boxes that customers can plug into their TVs to access the Roku platform. In the first six months of the year, those were responsible for about 59% of the company's total revenues of $199.7 million.

But the priorities are changing fast. Increasingly, Roku is licensing its platform to smart TV makers, such as Hitachi, Insignia, Sharp and TCL, as well as network operators. And advertising represents the most profitable revenue stream, says Kishore. Overall platform revenues, which include licensing and advertising sales, soared 91% in the first six months of 2017, to $82.4 million, compared with the year-earlier half. Device revenues were down 1.5% over the same period.

This business shift has come in recognition of the growing challenges that Roku now faces. "There are a number of streaming options and there are multiplying every day," says Kishore. "That's why Roku is hedging its bets, integrating with smart TV providers and operators. The goal is to position itself as a software platform rather than a device."

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kq4ym 9/15/2017 | 4:17:26 PM
Re: It's All About Being Neutral I've been a happy Roku user for years after shutting down satellite and later cable service here in SW Florida. You can't beat it for cost (free for most everything) and convenience, with it's easy to use interface.

I was surprised that most if it's income as noted were " 59% of the company's total revenues of $199.7 million." I would think getting those tv set makers aboard from a Roku license and increasing ad revenue might increase over time. Those Roku ready TV sets are highly recommended as well if you're in the market for a new set.
Smoochy18 9/6/2017 | 1:12:56 PM
It's All About Being Neutral I can tell you that we've seen a clear pattern with our customers, who are cord cutters. For those who start out using a competing device like Fire TV, Apple TV or Chromecast (which don't allow access to competitor's services), they eventually switch to Roku. Roku's neutral position makes it the best value for consumers and as long as they stay that way they will continue to outpace the competition.
brooks7 9/5/2017 | 12:52:02 PM
Re: Hardware Everybody is on multiple platforms.

The question really is:  Why would you move away from Roku given they have the most viewers?


danielcawrey 9/5/2017 | 10:48:24 AM
Hardware I'm not going to count Roku out, but having a hardware platform without services or software for other OTT providers is a bit scary. What stops them from moving on to another platform?
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