Overbought Roku May Become Next Broken Tech IPO


Late in a bull market, the quality of companies launching IPOs often declines. Roku is another money-losing tech IPO that has the feel of insiders cashing out on the public.

Roku has never been profitable in 15 years. The $14 IPO price appears to have been arbitrary without a supporting thesis for this apparent overvaluation.

Roku has followed the pattern of other hot IPOs whose prices have spiked initially but then sold off sharply to give back much of the initial gains.

The market may continue to sell this much-hyped IPO lower to a more reasonable valuation as questionable fundamentals and rising competition from superior companies are factored into the price of this stock.

Some IPOs are to fund future growth. Other IPOs are for management to begin cashing out. It is important to differentiate. Trader’s Idea Flow believes that Roku will become the next broken tech IPO to trade below its IPO price of $14.

This idea was discussed in more depth with members of my private investing community, Trader’s Idea Flow.

Full disclosure: Trader’s Idea Flow is a long/short trading service with some trades being only a day or two in duration. We are often a momentum trader both long and short. For example: Our Roku (NASDAQ:ROKU) long position was established on IPO day right out of the gate as the stock began trading. We then took profits the next day for a very significant short-term gain. We then established a short position. We are short Roku shares now. This post to our Marketplace service, Trader’s Idea Flow, was later copied to Instablog.

source : https://seekingalpha.com/article/4111259-overbought-roku-may-become-next-broken-tech-ipo 

ChartROKU Price data by YCharts

The RoCoup: Platform Businesses And The Future Of Entertainment

Roku successfully positioned itself as a key participant connecting consumers and their content in a rapidly evolving entertainment economy.

So successfully, that the $1 billion IPO doubled to well over $2 billion as it freed to trade.

If the bull thesis is Roku’s “platform” business, what would the company be worth if it executes, grows platform revenues and becomes profitable?

As a former Wall Street guy, I’d live for moments when the market set itself up to present an almost perfect trade opportunity. Typically, this would happen in the format of a “pairs” trade: you’d see the price of one thing take off, while something very closely related to it – a comparable – would stay stuck, for whatever reason.

Then you’d hit the phones and breathlessly call a customer, and say, “Look, John, I am watching the price of Company A trade through the roof, and Company B is in the same sector and in the same line of business and makes more or less the same money and is, right now, worth half as much.”

If I was lucky, John would either sell me A (and I’d make a commission), or buy some B (and I’d make a commission) or – and this would be ideal – John would simultaneously sell me A and buy some B because regardless of what the “right” price for either company was, since they were so similar, the gap between the two valuations had to close.

So, I would make two commissions, and buy John a fancy dinner.

That said, where am I going with this, and how is it related to Roku (NASDAQ:ROKU)?

Let me come right out and say it: I spend a lot of time at my day job thinking about the future of entertainment, which represents a problem that very few market participants have yet figured out. And right now, the uncertainties in this market are creating a pretty remarkable pair.

Entertainment is simultaneously fragmenting and expanding across multiple devices (your TV, laptop, tablet, phone, and potentially even your watch) and via multiple channels (linear vs. OTT). As legacy participants compete with emerging platforms for dominance, the only thing we know for sure is that not even insiders know how exactly to play their cards


soure     : https://seekingalpha.com/article/4112110-rocoup-platform-businesses-future-entertainment

Roku: My IPO Valuation

Roku is a leading OTT provider going public this Thursday.

The company’s business model is currently in transition from selling OTT streaming devices to driving revenue from partnered streaming companies and selling ads.

A closer look at valuation reveals that Roku’s IPO offering price is very attractive.


Roku, Inc. (ROKU) is an American private company that manufactures and sells home digital media products and operates subscription-based video streaming services and software platform enabling developers to build their channel streams through the distribution of their original content. According to a survey conducted in the first quarter of 2017 by Kantar Millward Brown, Roku operated the number one TV streaming platform in the United States as measured by total hours streamed. As of June 30, 2017, the company had 15.1 million active accounts. Based on a different data set from March 2016, Roku successfully managed to carve out almost half the OTT device market as can be seen in the output below.


Source: https://seekingalpha.com/article/4110221-roku-ipo-valuation

OTT industry rising fast

Looking at the global entertainment and media outlook, the over-the-top content – OTT – industry is on the rise. Last year, PwC’s global media outlook 2016-2020 report revealed that unlike other home video entertainment, OTT streaming market share expands at a steady pace. In the United States, which account roughly for the third of the global market, revenues have already successfully passed US$17.2 billion milestone.

Roku Has Further To Fall

Roku crashed more than 20% after reporting Q4 earnings that were fine, but included a weak outlook that investors didn’t like.

Shares are still up nearly 3x from their IPO price of $14.

Roku’s growth is decelerating quickly, and despite the company’s insistence that it is a platform that doesn’t depend on hardware revenues, it has a very limited ecosystem outside of it.

The competition against Roku is enormous.

Shortages of NAND chips caused logistics headaches that ate into the company’s margins this quarter.

Don’t kid yourself: Roku (NASDAQ: ROKU), the recent IPO that shot up >200%, has had this correction long coming. It’s a classic tale of hype over fundamentals – investors greedily bought into Roku’s story of cord-cutting and streaming without really thinking about the valuation implications of sending the stock up over $50. Even at $40, where Roku fell after reporting its fourth quarter and downbeat guidance, the stock is still vulnerable to further corrections.


ROKU data by YCharts

Little proprietary value in a very competitive market

As I wrote in a prior article, investors are too quick to draw comparisons between Roku and Netflix (NASDAQ: NFLX), and according to them both have the same benefit of the doubt when it comes to cord-cutting trends – when in reality, it’s Netflix that has emerged as the big winner. Over the past quarter, the chasm of quality between Roku and Netflix has only gotten wider. Roku has shamelessly made every effort to encourage the Netflix comparison, publishing a “shareholder letter” with every quarterly earnings instead of a press release, a signature of Netflix’s Reed Hastings. But while it’s easy to see Netflix still around and growing in five years, it’s hard to make the same case for Roku.

source : https://seekingalpha.com/article/4150518-roku-fall

Roku: Intriguing, But Don’t Buy Until It Plugs These Holes

Roku is increasingly seen by bulls as a potential power in the revolution of TV advertising, generating revenues in its Platform segment.

Roku has potential, but this enthusiasm is premature. The platform does not currently gather as much data as other platforms or monetize it well.

The company’s claim of unique access to an underserved population left behind by pay-TV is also somewhat questionable, since YouTube almost certainly serves that exact same segment with superior targeting capabilities.

Roku (NASDAQ:ROKU) stock has fallen following the release of the company’s third-quarter earnings, and several Seeking Alpha contributors have already written articles offering some excellent analysis of whether this dip represents a buying opportunity or the beginning of a longer decline.

This article will not be nearly as comprehensive, rather I want to narrow in on one specific aspect of the company’s performance: advertising. Many of the bullish arguments around Roku center, in substantial part, on its potential to become a major TV advertising power.

The purpose of this article will be to highlight some of the components that are currently missing from the company’s strategy if it wishes to achieve this, and the prospects of plugging those holes.

A Company In Transition

Roku is in the middle of transitioning its business to a platform-based model, away from hardware, which actually saw a 2% decline in revenue the first half of 2017. Meanwhile, platform revenue is growing strongly, and is seen as key to the business going forward.

Contributor General Expert has already written a strong and well-researched piece on the potential upside for Roku. The whole article is definitely worth a read, but in a nutshell, they see strong potential for the company owing to its platform business, with any profit on hardware sales as pure gravy. They emphasize that Roku is a low-fixed cost business, since it outsources hardware construction and earns positive margins on hardware sales. They see ad sales and subscription revenue sharing as the principal components of the platform revenue, with advertising taking about two of every three of those dollars.


source : https://seekingalpha.com/article/4152051-roku-intriguing-buy-plugs-holes

Retirement Security: What’s This Growth Stock Doing In A Retirement Portfolio?

Peter Lynch is a legendary investor whose most famous pronouncement and key to his success was “Invest in what you know.”

I followed that nostrum into Green Mountain Coffee Roasters and scored a four-bagger.

We’ll consider the prospects of a high-tech company, Roku, in the same vein and see if we can repeat that success.

Occasionally, a small diversion from a dividend growth strategy, with a small position, can yield unexpected results.

In the overall scheme of things, most retirement portfolios will be found to contain some mixture of dividend growth stocks, bonds, preferred stocks, CDs, annuities and the like. All of these investment classes are geared toward generating income for the retiree when he/she’s either too old, too sick, or just plain tired of the rat race to work a regular job.

So, some might find it unusual to find a pure growth stock, one that does not pay a dividend currently, included in such a portfolio. It should be noted, however, that many of my subscribers and readers have messaged me over the years, in article comments, emails, and direct messages, that they occasionally add a growth stock to their portfolios to participate in what they anticipate will be a capital-enhancing exercise. Most retirees and near retirees (including me) devote the bulk of our attention toward those investment classes concerned with generating current income to fund retirement expenses.

And the Fill-The-Gap Portfolio, which I have written about for over three years here on Seeking Alpha, has adhered to that regimen, containing ONLY dividend growth stocks. Till now.

Once in a while, a pure growth stock comes along that appears to present the opportunity and potential for very good growth in market value alone.


source : https://seekingalpha.com/article/4156113-retirement-security-growth-stock-retirement-portfolio

Amazon Targets Roku, Steals Away A Key Relationship With Best Buy

The event itself was predictable, the timing of the event more difficult. It was just a matter of time before significant competition from major companies began to increase for Roku.

At the time of the 3/22/18 Trader’s Idea Flow Update, our Roku short was up almost 10%. With today’s 11% decline in Roku’s share price, this short’s gains have improved.

We believe Roku has much more downside ahead. Today’s news regarding the Amazon-Best Buy partnership is likely to be one of several major competitive threats now emerging for Roku.

This idea was discussed in more depth with members of my private investing community, Trader’s Idea Flow.

Today’s negative news for Roku (ROKU) is actually a double whammy of badness for the September 2017 IPO. The obvious headline is that 10 different models of Amazon’s (AMZN) Fire TV will begin taking up floor space at Best Buy (BBY) stores in the U.S. this summer. But the relationship between Best Buy and Amazon runs deeper, and this is where the problems begin to multiply for Roku. Please take note of the third bullet regarding the Insignia brand in the CNBC article summary below:

Insignia is Best Buy’s own brand, and Amazon has won this key relationship by taking it away from Roku. Best Buy previously partnered with Roku via the Insignia brand. No more. Clearly, Best Buy is now financially motivated to promote Amazon products at the expense of Roku products. So, it is not just that 10 new models of Amazon’s Fire TV will be taking away floor space from products with Roku’s platform installed inside. It is actually much worse for Roku. Best Buy is now a partner of Amazon that’s in direct competition with products that incorporate the Roku platform. Not good for Roku.

ROKU data by YCharts

SNAP data by YCharts

KODK data by YCharts

ULTA data by YCharts

DBX data by YCharts

GE data by YCharts


source : https://seekingalpha.com/article/4164023-amazon-targets-roku-steals-away-key-relationship-best-buy

Roku Starts 2018 With A Bang

Roku had a great quarter, beating its quarterly guidance and raising the full-year guidance.

The company is rapidly expanding its user base (+47% y/y) while also making more platform revenue for each user (+50% y/y).

Platform revenue is highly profitable, with gross margins over 70%.

Roku remains unprofitable, but could turn the corner to profitability in the second half of 2018.

This idea was discussed in more depth with members of my private investing community, The Growth Operation.

ChartROKU data by YCharts

On May 9th, Roku (ROKU) released results from 1Q18. Those results were impressive, with Roku showing continued growth in all major metrics from active accounts to revenue. Roku beat its earlier outlook for the first quarter in revenue, gross profit, net income, and adjusted EBITDA, and raised the full-year guidance for each category.

Beat and Raise

1Q18 Guidance 1Q18 Results

Total Net Revenue $120 to $130 million $136.6 million

Total Gross Profit $52 to $58 million $63.1 million

Net Income (Loss) ($21) to ($15) million ($6.6) million

Adjusted EBITDA ($16) to ($10) million ($0.8) million

Back in February, Roku forecast net revenue of $120 million to $130 million. Seeking Alpha news suggests the Street expected revenue of ~$127 million. Instead, Roku delivered revenue of $136.6 million, easily beating the Street’s expectation and the high end of Roku’s guidance.

FY18 Guidance (Feb 2018) FY18 Guidance (May 2018)

Total Net Revenue $660 to $690 million $685 to $705 million

Total Gross Profit $275 to $295 million $290 to $305 million

Net Income (Loss) ($55) to ($40) million ($40) to ($25) million

Adjusted EBITDA ($25) to ($10) million ($10) to $5 million

Similarly, Roku improved its full-year 2018 guidance in all four categories as well, showing improved strength in the business.

source : https://seekingalpha.com/article/4172120-roku-starts-2018-bang


Roku: Buy This Industry Disruptor

Roku’s shares are breaking out higher.

It is strategically positioned to take advantage of the shift in TV.

I am buying stock in this company.

This idea was discussed in more depth with members of my private investing community, Absolute Returns.

Roku (ROKU) is gaining upward momentum as its fundamental operations continue to expand, leading a number of bearish analysts to turn bullish. The company has taken market share and experienced strong growth since its IPO as it is strategically positioned to benefit from consumer migration from traditional TV to streaming services.

Its share price shot higher in the first few months of trading, leading to a number of bearish calls on the stock by Wall Street analysts. After the recent selloff in its share price however, many analysts are now bullish due to the company’s continued operational success. I am buying stock in this name as it looks to be a generational company in the early innings of its growth trajectory.

Fundamental Narrative

Roku has experienced impressive operational growth in recent years, but valuation has always been seen as a concern. Its share price nearly halved in the first few months of 2018, leading many top analysts to emerge touting the company as an attractive buying opportunity. Due to its continued growth and positive sentiment around the investing community, Roku could see its share price trade higher in coming quarters.

The most recent catalyst to Roku shares trading higher has been a change of heart from short seller Citron Research, which says it’s now covered its short and gone long on the streaming stock, according to Seeking Alpha. Last November, Citron tweeted that the stock had become a joke and would trade back to $28 after running up to $50 following its IPO. Citron recently said however:

“But now everything has changed, and it is time to re-evaluate, the [over-the-top] movement has become a megatrend that cannot be ignored.”


“It’s trading at its biggest discount to OTT peers despite being the only pure play that generates ad revenue.”

Another previously bearish analyst came out recently to upgrade the company. Analyst Benjamin Swinburne, from Morgan Stanley (MS) continues to have concerns over the lack of visibility into long-term ad monetization, particularly thanks to boosted TV OS competition from Amazon (AMZN) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) however, with the stock down more than 25% this year, the current valuation isn’t as elevated as it once was, according to Seeking Alpha.

source : https://seekingalpha.com/article/4181767-roku-buy-industry-disruptor


Financial Exchange Stock Talk: Josh Rudnik On Roku And Southwestern Energy

We now partner with Financial Exchange Radio to produce a weekly segment with Seeking Alpha authors.

Josh Rudnik continues the series with his bullish picks: Roku and Southwestern Energy.

Roku continues to generate revenue growth; 10% of millennials are captured only on its platform – a huge number in terms of ad dollars. SWN’s further operational improvements should lead to increasing investor optimism.

This idea was discussed in more depth with members of my private investing community, Absolute Returns.

See Josh’s recent pieces on Roku (NASDAQ:ROKU) here and Southwestern Energy (NYSE:SWN) here.

source : https://seekingalpha.com/article/4186001-financial-exchange-stock-talk-josh-rudnik-roku-southwestern-energy