Even though we had a significant lead time in understanding their value propositions, many Australian investors still underestimated the global investment opportunity of companies such as Afterpay and Xero.
But it’s not just Australians who underestimate the world outside their home country. Investors in the United States do as well.
We believe that they are currently underestimating the size of opportunity for streaming platform Roku outside the US, which means the company, like Afterpay and Xero, has massive upside potential.
ROKU Share Price
The app store of streaming
Roku is a streaming platform. But it can be more easily thought of as the ‘app store’ of streaming.
Roku hosts a huge number of streaming channels on its platform. A user can search across all of them to find the TV show or movie they want to watch. The channels are both premium channels (like Netflix) or free channels (like Channel 9) that make money via advertising.
Right now most streaming services are siloed, but Roku aggregates them, and by doing so creates a slick user experience for streamers.
Value to all players
Whilst fairly straightforward, it is the details of Roku’s business model that showcase the strength and quality of this global investment opportunity.
One of the reasons why Roku has been so wildly successful is that their business model provides value to all players in the ecosystem:
- Users: Roku gives viewers more bang for their buck than cable TV because it offers thousands of channels for users to pick and choose from. It allows users to seamlessly search across them and find the shows and movies they want. If they wish to pay for premium subscriptions then Roku makes that easy too.
- TV Manufacturers: Roku lets TV manufacturers outsource software to Roku, allowing them to focus on building hardware, and saving significant money and driving higher margins for their own business. This has massively suited Chinese manufacturers who can’t compete on the software front with the likes of Samsung, LG, etc.
- Advertisers: By moving TV into the digital world, Advertisers benefit immensely. The change is akin to magazine advertising versus social media advertising. Advertisers, compared with ‘Linear TV’ get better engagement, better analytics (feedback) and better results.
- Content Distributors: Content distributors are starting to recognise the value of Roku’s platform as well. With advertising money moving across to Roku and more users onboarding automatically with Roku built straight into their TV’s, Content providers are leveraging the advertising tools on Roku to drive subscription sign-ups for their own service. Disney+ was a prime example of this.
The global investment opportunity
In the US alone, one of every 3 TV’s sold is a Roku-enabled TV. Now with 46 million active accounts their growth is accelerating and they are only just starting to expand outside the US.
Active Accounts (millions)
By comparison, Netflix has 195 million subscribers. Netflix, as a content producer, must suit the needs and wants of each region it enters. Roku, however, as the platform provider, can partner with content providers locally in each region enabling them to better penetrate the global market.
With 1.6 billion households globally, coupled with the fact that in the US many households have multiple accounts, the opportunity here is enormous . Further, Roku is able to better monetise it’s users with a higher average revenue per user than Netflix and this is likely to increase as advertisers shift more of their marketing dollars across to Digital TV.
A future household name
In Australia there has been an obvious increase in the number of streaming services, but this is a fraction of what the US have and thus the value of the Roku platform can be difficult to appreciate. Roku focuses acutely on providing value to all the players in its ecosystem, and by doing so it enables all of them to thrive in the digital TV era.
Whilst there is much more to the Roku story it is clear that they are getting the formula right, with their stock up more than 120% this year alone. As they continue to grow their feature set and expand internationally, the Roku platform will start to become a household name outside of the United States.
Going global avoids underperformance
Australian investors are asking why the future investment portfolio needs to shift to a global framework? Global investment opportunities like Roku rarely present themselves in the local market and ignoring the innovation occurring off shore just creates more risk to a locally focused portfolio. Ultimately, without addressing this, investors will underperform.
To keep across more of the Roku story please subscribe above and follow its growth in the portfolio here