ROKU sells at 28.7x book value. The S&P’s selling at 10.4x. S&P companies make money.
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Forget earnings. Roku has none. “Price to sales” you ask? 12.7 vs. S&P’s 2.15. That’s 5x the benchmark. Yes. That’s cheap, next to say, Zscaler’s 35x sales. But ZS’s growing sales at a 60% rate, vs. ROku’s 47%.
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Roku’s
a $10.4 billion micro-cap out of Los Gatos California. It’s skied 205%YTD. Wow. Could there be any question concerning buying ROKU here? It’s chasing, anyway you slice it. That is unless you understand that it’s a tread-driven secular momentum play. It is in a technical slump. Shares were down more than 3% as we began writing, just following the opening bell on Tuesday morning. It’s down 8.06% over the last 20 days.
Roku’s losing money everyday. That means it lives on debt. As of the company’s Q1 report on May 8th, ROKU’s losing -$0.11 a share non-GAAP. Consensus estimates predicted -$0.24. Thus the quarter goes down as a 63.9% beat. This is a company growing revenues by a 3Y annualized 32.4%.
CFRA research hates ROKU on “Quality, Valuation, and Financial Health.” CFRA rates it a “Sell.” What do they like? The only things they could, “Street Sentiment,” and “Price momentum.” “Hold,” is the recommendation floated by Reuters.
What
about product experience? Ultimately, customers determine a company’s fate. Roku games customers from their opening statement. “Plug it in and start streaming.” Not really–no. Only after you buy it does Roku say it. They demand a credit card, just to activate. Why? Paraphrasing “It makes it easy to add channels and make purchases.”
Roku’s cynical leveraging of a registered payment method is all about reducing “friction” at the POS, “point of sale.” Good companies don’t leverage customers. They don’t need to. They prove their value first. Think Amazon’s free trials.
The fact that Roku demands a c card simply to use the device you already purchased, should tell you something about integrity. You invite them into your home and life, pay them, and they respond by refusing to allow you to use the product, until you lean even further in. Kidnappers behave that way.
On Monday RBC Capital downgraded Roku to “Sector perform.” Price target of $90. Current price $93.45, 7-5-19.
Activation means creating an account. The site began looping. “Create account, Select a PIN, Account,” back to “PIN.” No escape. Try not insisting on a PIN to authorize any purchases? As soon as “No PIN required,” was selected the process moved forward to step 3.
Online
forums report the same experience. Alonso12 tells us on the forums.roku.com page “…I have been trying since yesterday to create the account but when I click continue after putting in a PIN it sends me to the first step and says “Oops! Something went wrong, please try again.”
Roku In.(NASDAQ: ROKU), 7-3-19.
Roku’s
devices are far too cheap to build or sustain real revenue . The real game here lies in post device purchases such as channel subscriptions, but even more so in platform ad placements. Thus the ROKU “Channel Store.”
Roku is the HP printer/ink blight all over. The money’s in the ink. For Roku it’s the ads they sell to third parties and then pimp you with. The data stream’s also very nice. Roku is an ad and sales platform. Aaggregating streaming sources simply gathers the audience.
What does the company summary statement on Schwab say concerning Roku; “The Company connects users to streaming content, enables content publishers to build and monetize audiences and provides advertisers with capabilities to engage consumers. Its Roku platform allows users to personalize their content selection with cable television replacement offerings…” Everything we stated previously about Roku being “the new calbe,” we wrote before we saw this.
Roku considers itself an ecosystem. It’s also similar to the in-game products created by video game makers; real ads, virtual and physical products. Take a step back and Roku looks exactly like a cable operator. The ads are simply on the platform, rather than solely pressed into the content. It’s also the Tivo data-mining format. The device is just the cover charge.
ON tHe CaLL
For us, Roku’s conference call is like listening in on Satan’s workshop. You hear about “developing audiences” as though people are a cash crop. They are. Roku approaches “active accounts” or customers with a “meat processing” mentality. Not once did they display any gratitude, as many companies actually do. They never bothered to thank any, or display any understanding about how treating customers well is what creates their future.
In summary fashion, CEO Anthony Wood comments to the effect that “What’s motivated me from the beginning is that all ad dollars are migrating to streaming.” He’s simply following the money. As people attempt to escape cable’s monopolistic abuses, Roku does everything possible to create next gen cable. Roku simply seeks to aggregate and advertise.
“Machine learning driven recommendations” are part of the consumer-facing side. Never mind that Netflix has by far the most sophisticated algorithms in the business, and at least a decade lead, and an ad-free service.
More super-sized players such as Disney and Apple are finally moving closer to launching their OTT platforms. Such massive firms pack a serious and experienced negotiating punch. When questioned about dealing with them, Roku insists they’re “partners,” not adversaries capable of fugly hardball tactics like Roku uses against it’s customers.
The biggest players are at their door and the company’s fat margins are on the line. CEO Anthony Wood. “We are an essential partner for launching any OTT offering…Our biggest competitor is liner TV.” Paraphrasing Wood “Our first-party relationship with account holders allows more leverage for delivering audience to advertising.” And there you have it.
Roku’s mission is serving you up to advertisers, rather than providing useful service to you. And they tell you so. “Our number one focus is bringing in new ad dollars.”
Mere moments earlier they suggest that “Our singular focus is a superior platform. We have over 30 partners now. We offer one bill, one log-in, and one place to gather channels, on our platform…we’re going international.” It’s impossible to tell if this is confusion, or double talk. Either way, Roku is the nascent new cable. This is a la carte cable complete with soul-sucking ads, provided by the majority of channels, and the aggregator. Only this time OEMs are also helping.
Roku’s
stabbing with a fork. The company’s following Netflix, collaborating with original equipment manufacturers, or OEMs, to build its’ platform directly into your TV. Roku isn’t a petty purchase price play. It’s the long game. Of course, Roku also comes as a stand-alone stick-on purchase. And how’s it working? “Platform revenues up 71%. The 1# smart TV streaming platform system, taking share from ‘Home-grown’ OEM” devised streaming solutions.
Like many others, Roku’s prune metric is “Active Accounts,” and viewer “engagement.” Average viewing time is over three hours a day. Q1 brought in two million new active accounts. In total they now have 29.1 million active accounts.
On the call analysts got personal. “What percentage of platform revenue came from advertising?” The company dummied up. “We don’t break that out–” crackle, pause…”It was the biggest part.” Big surprise. And then “No, we have no plans to license any original content.” Rather, “We can make it the greatest aggregation point for original content.” Or course. Sweeping together is always much easier then actually creating. Everyone’s invited. Never mind the cover charge. It’s the back end price that’s gonna sting.
ROKU Q1, 2019 Earnings Conference Call:
https://ir.roku.com/events/event-details/q1-2019-roku-earnings-conference-call
Roku Q1 Earnings Press Release link;
https://ir.roku.com/financial-information/quarterly-results
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