A Roku IPO problem: Netflix and YouTube are huge on Roku, but they don’t make Roku any money
The streaming video box company wants to be a streaming video services company. But someone has to pay them for that.
Roku has spent the last few years fighting for your living room against fearsome competitors — Google, Apple and Amazon — and it has more than held its own. Now it gets a payoff, via an IPO.
The pitch to investors: Get a piece of the next generation of the cable TV business, where video programmers who want to reach a huge audience will pay Roku to reach them.
A red flag for investors: Some of Roku’s biggest programmers don’t make Roku any money at all.
Let’s back up. Roku is going public as it moves from a low-margin business — selling video streaming devices — to a potentially high growth, high-margin business — taking a cut of advertising and subscription fees programmers generate using its devices.
First the good news: For now, Roku’s strategy of pushing its prices down has helped it compete against very deep pocketed rivals. In the first half of this year, it saw a 37 percent increase in device sales, led by its $30 Roku Express stick.
That cost its device business — Roku calls it its “player” business — both revenue and gross profits: They are down 2 percent and 28 percent, respectively.
Roku says it’s ok with that. All of those new devices helped its services business — Roku calls it its “platform” business — bump up revenue by 91 percent, while gross profit jumped 104 percent.
And Roku has been at this for several years. It now has 15.1 million monthly users, up from 4.8 million three years ago. And it is generating an average of $11.22 in service revenue for each one of them, up from $4.65 per user three years ago.
It’s certainly possible those trend lines continue. Then again, once you have a Roku box, or a TV running Roku’s software, it’s entirely possible to use Roku as a consumer, or as a programmer, without generating any extra revenue for the company.