Coverage: Roku stock rises 68 percent in first trading day
Investors brushed aside concerns about Roku’s stiff competition in the video streaming business, sending the company’s shares up 68 percent on its stock market debut Thursday.
David Pierson and David Ng of the Los Angeles Times had the news:
Roku stock closed at $23.50 after pricing its 18 million shares at $14 apiece, which was at the high end of its expected range.
The enthusiastic response to Roku’s $252-million initial public offering comes despite concerns the Los Gatos, Calif., company is up against the world’s biggest technology giants, namely Amazon, Apple and Google.
All three of them offer streaming video boxes featuring the most popular apps, such as Netflix and Hulu, to the growing number of cord cutters.
Moreover, Amazon and Google are large enough to sell their hardware at more affordable prices, adding more price pressure on rivals. Amazon, for instance, introduced a 4k Ultra HD Fire TV streaming player for $69.99 on Wednesday, around $20 less than Roku’s similar Premiere+ device. Also, most TVs sold today feature functions to download streaming video apps.
Marisa Kendall of the San Jose Mercury News reported that Roku is not yet profitable:
Roku is one of the pioneers of the increasingly popular “cut the cord” movement, which allows people to watch their favorite movies and TV shows online instead of via traditional cable packages. Roku, originally a hardware company, now offers both streaming players and a service that gives users access to programming from Netflix, Hulu, Amazon Video, HBO and more.
Like many Silicon Valley tech companies entering the public market, Roku is not profitable. The startup generated a net loss of $24.2 million on revenue of $199.7 million during the first six months of the year, according to the company’s filing with the Securities and Exchange Commission. But the company’s business is growing. Roku pulled in $398.6 million in revenue last year, up 25 percent from the year before.
And Roku operates the number-one TV streaming platform in the U.S. as measured by total hours streamed, according to the company’s filing. As of June 30, Roku had 15.1 million active accounts.
Max A. Cherney of MarketWatch.com reported that Roku believes streaming boxes are not the future:
Roku is largely known for its line of TV streaming sticks and devices, but executives say that the future lies in money generated from what people use the gadgets for: consuming content. Roku is staking its growth on its dedicated TV and streaming device operating system, described as “platform” revenue in company filings with the Securities and Exchange Commission that showed sales growth of 91% in the first six months of 2017 from the previous year.
“What’s important in the evolution of the company is the platform business is becoming a greater and greater portion of Roku,” Chief Financial Officer Steven Louden told MarketWatch in a telephone interview Thursday. “It’s now 80% of our gross profit and I think it’s great proof-point for investors about really what the Roku business model is about.”
The company generates revenue from its streaming operating system in three ways: It sells ads, which make up about two-thirds of the current platform sales, and has revenue-sharing agreements for content and subscriptions purchased via its operating system, according to Louden. A final 5% comes from licensing the technology to others.