Discussing Our Roku Valuation with Nick Grous and Andrew Kim
Discussing Our Roku Valuation with Nick Grous and Andrew Kim
Please note: as of 3/31/22, ARK’s clients own greater than 1% of the shares outstanding of Roku Inc.
We believe there’s a major shift taking place in the TV ecosystem in terms of people moving from linear (cable) TV to connected (streaming) platforms and it’s only going one direction. The advertising world hasn’t quite caught up; In Roku’s first quarter earnings call, CEO Anthony Wood reiterated that US audiences spend 46% of their TV time on streaming while advertisers spend only 18% of their TV ad budgets on streaming. We believe there is an enormous investment opportunity here, and in today’s episode we are going to be talking about why we believe Roku, the only purpose-built operating system for TVs today, is positioned to be a prime beneficiary of the shift from linear to connected TV. Tune in today to hear our predictions for the next five years, the factors required for our thesis to crystalize, exciting developments taking place at Roku, and more! You can read the full Roku valuation blog here.
Key Points From This Episode:
- An overview of what Roku is.
- How the TV ecosystem has shifted.
- The drop that we expect to see in the number of households using cable/broadcast (linear TV) in the US in the next five years.
- The number of households that we expect to be using connected TV (streaming) in the coming years.
- The mismatch between advertising dollars spent and engagement in the streaming space.
- A comparison between the amount of advertising dollars spent on connected TV and linear TV.
- How we predict global and US advertising spending will change in the next few years.
- Three key variables that our assumptions about Roku’s future depend on.
- How we expect Roku’s daily hour stream per account metrics to change by 2026.
- Roku’s approaches to driving revenue dollars.
- Live sports; what we believe to be the linchpin holding the linear TV advertising space together.
- The growth that we expect to see in global digital advertising spending by 2026.
- Why we think connected TV targeting can improve but linear TV targeting cannot.
- Our calculations of Roku’s gross platform monetization rate.
- Benefits of the Roku Pay offering (that we are monitoring very closely).
The forecasted performance and price estimates herein are subject to revision by ARK and provided solely as a guide to current expectations. There can be no expectation that the specific security will achieve such performance or that there will be a return of capital. Past performance is not indicative of future results.
FORECASTED PERFORMANCE RESULTS ARE HYPOTHETICAL AND HIGHLY SPECULATIVE, AND PRESENT MANY RISKS AND LIMITATIONS. The recipient should not consider these estimated prices alone in making an investment decision. While ARK believes that there is a sound basis for the forecasts presented, no representations are made as to their accuracy, and there can be no assurance that such forecasts or returns will be achieved by the specific security.
The recipient is urged to use extreme caution when considering the forecasted performance, as it is inherently subjective and reflects ARK’s inherent bias toward higher expected returns. Any higher returns should be viewed as a measure of the relative risk of such investments, with higher forecasted performance generally reflecting greater risk. There is no guarantee that any results will align with the forecasted performance, and they might not be predictive. Some or all results may be substantially lower than projected results and, as with any investment, it is possible that you could lose money.
FORECASTED performance results (single security model simulation forecasts) have many inherent limitations. A recipient account might or might not hold this single security, and the account performance will be affected in proportion to its holding size and the amount of price fluctuation over time. No representation is being made that any client account will or is likely to achieve profits or losses tied to a security in the security model forecasts. In fact, there could be significant differences between these forecasted performance results and the actual results realized.
Forecasted performance has not been achieved by the security, and like all modeled, projected or hypothetical performance, it is important to note that there are multiple versions of a model, and ARK has a conflict of interest in that we have an incentive to show you the best performing results. These forecasts rely on models, which calculate hypothetical performance. Several of the limitations of hypothetical performance models include: 1) reliance on a variety of data obtained from sources that are believed to be reliable, but might be incorrect, inaccurate or incomplete and ARK does not guarantee the accuracy or completeness of any information obtained from any third party, 2) potential inclusion of inherent model creation biases, data discrepancies and/or calculation errors that could cause actual results to differ materially from those projected, 3) NO reflection of the impact that material economic and market factors might have had on investment decisions that would have been in actual portfolios being managed at the time and do not involve market risk, and 4) NO guarantee of future investment results. The forecasted results rely on assumptions, forecasts, estimates, modeling, algorithms and other data input by ARK, some of which relies on third-parties, that could be or prove over time to be incorrect, inaccurate or incomplete.
The forecasted returns are based on a variety of criteria and assumptions, which might vary substantially, and involve significant elements of subjective judgment and analysis that reflect our own expectations and biases, which might prove invalid or change without notice. It is possible that other foreseeable events that were not taken into account could occur. The forecasted performance results contained herein represent the application of the simulation models as currently in effect on the date first written above, and there can be no assurance that the models will remain the same in the future or that an application of the current models in the future will produce similar results because the relevant market and economic conditions that prevailed during the performance period will not necessarily occur. The results will not be updated as the models change, or any information upon which they rely changes. There are numerous other factors related to the markets in general or to the public equity security specifically that cannot be fully accounted for in the preparation of forecasted performance results, all of which can adversely affect actual results. For these reasons, forecasted performance results will differ, and could differ significantly from actual results. FORECASTED PERFORMANCE RESULTS ARE SUBJECT TO REVISION AND PRESENTED FOR ILLUSTRATIVE PURPOSES ONLY.
While ARK’s current assessment of the subject company may be positive, please note that it might be necessary for ARK to liquidate or reduce position sizes prior to the company attaining any forecasted valuation pricing due to a variety of conditions including, but not limited to, client specific guidelines, changing market conditions, investor activity, fundamental changes in the company’s business model and competitive landscape, headline risk, and government/regulatory activity. Additionally, ARK does not have investment banking, consulting, or any type of fee-paying relationship with the subject company.