The Roku IPO took centre stage this week with the shares surging from the top of the range $14 placing price ending the week at $26.54. This near doubling of the IPO share price values the company at approaching $3 billion but also puts it in the headlights of Amazon, Apple and Google which have shown a great interest in the company’s streaming media player market. So, can Roku really take on the likes of Amazon, Apple and Google?
Market share
While some investors are sceptical about any company’s ability to take on the US giants it is worth noting that Roku currently has a market share in excess of 30%. This is greater than all of its competitors at the moment although there is some concern that the company brings nothing new to the table but is instead just a platform to promote different elements of the streaming industry. The company is in effect a technology hardware provider but there is more to this than meets the eye.
The fact that Roku is able to accommodate an array of different streaming services, as opposed to Google, Amazon and Apple who only promote their own services, should not be underestimated. This has also opened up a number of advertising opportunities which the company has been extremely quick to react to.
Loss-making
As with many “start-up” technology companies the records show life can be challenging in the early days with Roku generating revenue of $399 million in 2016 which was an increase from the $320 million figure for 2015. The corresponding losses for each year were $43 million and $41 million but this in itself is nothing to be too concerned about. There is no real guidance as to when the company will break into profitability but the larger the company’s customer base the more pent-up revenue will emerge in the future.
Some analysts are concerned that sales of hardware players represented around 75% of revenues in 2016 and mention companies such as BlackBerry, Fitbit and GoPro which were all innovators which fell by the wayside. Is it fair to compare Roku to these companies? The fact that Roku has a greater market share than all of its competitors at a relatively early stage in its life should not be underestimated.
IPO market
The IPO market of late has been relatively quiet but there is no doubt that the success of the Roku launch will encourage others to come forward, especially those with a technology bias. The early indications suggest that there is significant demand from retail investors with many institutional investors selling into strength. Some may be cautious about retaining Roku shares in the short to medium term, after the IPO bounce, especially when you bear in mind the performance of Snapchat shares after its initially successful IPO.
There is no doubt that while the likes of Amazon, Google and Apple dominate many areas of the market they are not infallible and they do make mistakes. Artificial intelligence is an area where Google invested heavily in the early days only to jettison many of these subsidiaries in recent times. Pricing pressure could hit Roku in the short to medium term if its competitors see a real challenge going forward. They can afford to cut their hardware costs to the bone knowing they have sufficient long-term market coverage to make this pay.
However, wouldn’t it be great to see a relatively new technology company taking on the giants and winning? A real David and Goliath battle!