In this video I will be talking about the advertisement side of the Roku (NASDAQ:ROKU) business. Because Roku is so much more than just a streaming play. It will need to compete with all the other streaming players out there, but you should be thinking of Roku as a gateway for streaming content on your TV and as an advertising play.
The company reported Q1 total net revenue of $574.2 million, up 79% year over year. Gross profit was up 132% YOY to $326.8 million. Roku added 2.4 million incremental active accounts in Q1 2021 to reach 53.6 million. Streaming hours increased by 1.4 billion over the last quarter to 18.3 billion. Average revenue per user (ARPU) grew to $32.14 (on a trailing-12-month basis), up 32% YOY.
For Q2 Roku expects operating expense to be roughly 15% higher than in Q1, in part due to organic headcount growth and the inclusion of expenses related to recent acquisitions. But gross profit is expected to outpace it.
Roku’s operating system (OS) remains the No. 1 OS for smart TVs sold in the U.S., and it’s now the No. 1 TV OS in Canada as well. One in three smart TVs sold in Canada now is a Roku TV. In Mexico, Roku is the No. 2 smart TV platform, behind Samsung. Brazil is a market that it entered not too long ago, first with TVs, then with streaming players, and more recently with another TV OEM (original equipment manufacturer). It’s still early days, but it’s looking good. Roku has also entered the U.K. market.
The Roku Channel
The Roku flywheel is being used to develop a high-quality advertising platform. More content on the Roku Channel drives engagement and more users, which leads to more data, which will lead to advertisers and marketers spending their dollars, which will then be reinvested to create more content, which will attract more users, and so on and so forth.
According to eMarketer, Americans on an average day will spend more time on TV streaming than all major social media platforms combined: three times as much as on Facebook, twice as much as on YouTube, and roughly two and a half times as much as on Instagram, TikTok, and Snapchat combined. And, like these major social platforms, Roku possesses deep, direct relationships with consumers that do not depend on third-party identifiers and cookies.
In 2019 Roku acquired a company called DataXu, a DSP platform that is used to purchase advertising in an automated way. To help you understand what it does, let’s take an example of a married person with kids who has a phone, two laptops, and a tablet. She uses these devices for work and pleasure, which makes it very hard to understand her interests. So to actually reach that person with relevant ads will cost advertisers a lot of money, and the advertising isn’t even certain to be well targeted. So how do you solve this problem?
So you have deterministic data, which is data that is based on user login, usually 100% accurate. On the other hand, data derived from patterns of activity is not as precise; this is called probabilistic data. Combine both and you might get a clear picture of what’s going on, and it will cut down on messaging and eliminate budget waste. This is what DataXu does.
And lastly Nielsen. Roku has entered into an agreement to acquire Nielsen’s Advanced Video Advertising (AVA) business, which includes Nielsen’s video automatic content recognition (ACR) and dynamic ad insertion (DAI) technologies. The acquisition will accelerate Roku’s launch of an end-to-end DAI solution with TV programmers. This allows advertisers to make more informed decisions about where to spend their ad dollars and enables publishers to more easily prove the value of their platform.
If you’re still not convinced, according to Pixalate, 49% of all programmatic OTT/CTV ads go to Roku devices.
One thing is certain: If you’re a new streaming platform, you want to be found on Roku. And if you’re an advertiser/marketer, you want to spend your ad dollars on Roku.
For the full insights do watch the video below.
*Stock prices used were the closing prices of May 28, 2021. The video was published on May 30, 2021.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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