Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

How Roku Will Profit On the Streaming Wars

By Evan Niu, CFA - Nov 8, 2019 at 9:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Roku management discussed the launch of new services on its earnings call this week.

Streaming TV platform Roku ( ROKU -2.24% ) reported third-quarter earnings this week, and this November is an important month for video streaming. Apple launched Apple TV+ at the beginning of the month, and Disney's Disney+ will debut in less than a week. Those are two high-profile service launches that Roku hopes to benefit from as an agnostic tech platform. Investors have been trying to figure out how to feel about those services -- shares tanked in September when Apple announced the aggressive price point of just $5 per month for Apple TV+.

During the earnings call, management provided quite a bit of commentary regarding the streaming wars and how the new services will contribute to Roku's business.

Apple TV app displayed on a Roku TV

The Apple TV app is now available on Roku. Image source: Roku.

Something for everyone

Cannonball Research analyst Vasily Karasyov asked if services like Apple TV+ or Disney+ might hurt the ad business, as they could nudge engagement toward subscription services instead of ad-supported channels like The Roku Channel, which has been crucial to growing advertising revenue.

CEO Anthony Wood dismissed the concerns, saying that anything that drives overall engagement on Roku's platform is good, particularly as more streaming services should accelerate the ongoing shift of eyeballs -- and ad dollars -- from linear TV to over-the-top (OTT) platforms. Wood added:

We think that eventually all TV is going to be streamed and that this will be -- the rise of all these new services will help encourage that transition. So we have customers that want to watch paid premium services. We have customers that want to watch free content. We have customers that want to watch both.

And so we think all those business models are supported on our platform. We monetize all those business models. We see advertising is growing the fastest but they're all generally good for our business.

Platform chief Scott Rosenberg added that the real task is to attract those linear TV ad budgets "out of linear into OTT."

Three ways to profit

RBC Capital Markets analyst Mark Mahaney asked how investors should think about Roku monetizing third-party services. The analyst pointed to three broad revenue categories: customer acquisition ad revenue, subscription revenue share, and advertising revenue share. Mahaney asked, "Of those three buckets, where do you think the impact to you from the streaming wars is going to be most likely seen?"

"For us, this is ultimately about giving consumers even more options in OTT and we're partnering very deeply with these companies to help launch their services, acquire subs, drive engagement," Rosenberg replied, without directly answering the question regarding revenue categories. "And I won't comment on the economics of any specific partner except to say that our relationships are multifaceted."

Wood noted that Roku offers a slew of tools for companies to promote their services and garner subscribers, in addition to earning a piece of premium subscriptions it sells:

There's a [revenue] share for customers that we sign up and that is going to continue to grow. But there is also a lot of marketing opportunity and ways for them to build their subscribers and they're very effective, more effective than probably any other way they spend their marketing dollars. And so that's the big way that we make money for new content partners.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Roku Stock Quote
Roku
ROKU
$205.55 (-2.24%) $-4.71

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
141%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/05/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.