Please ensure Javascript is enabled for purposes of website accessibility

Roku's Making a Big International Expansion

By Adam Levy - Jan 23, 2020 at 9:30AM

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

The domestic connected-TV leader is hoping to catch up to its rivals internationally.

Roku (ROKU -5.36%) highlighted international markets as one of its big areas of investment for 2019. Management warned, however, that the investments in those markets won't show up in its results until 2020.

2020 is here, and Roku is ready to capitalize on all the retail, content, and manufacturing relationships it started building last year. Its first big expansion is in Brazil, where the company just announced partnerships with AOC and Globoplay for new smart TVs.

Brazil represents a sizable opportunity for Roku. It's one of the largest markets in Latin America, and it could be a stepping stone for Roku to other countries in the region. Meanwhile, Amazon (AMZN -1.51%) still doesn't provide full support for Fire TV in Latin America. Focusing on markets where Amazon doesn't have as big of a presence could help Roku catch up with its biggest rival in international users.

Roku's logo with Brazilian flag colors in the corner.

Image source: Roku.

The international opportunity

Roku's revenue is highly concentrated in the United States. Over 90% of its combined device and platform revenue comes from its home market.

While Americans are notorious couch potatoes, the streaming video and digital advertising industries that Roku operates in are much less concentrated. Netflix, for example, counts more than 1.5 times as many international subscribers as domestic. Alphabet, which generates the vast majority of its revenue through digital advertising, generates more than 50% of its revenue outside of the United States.

Roku expects the strengths that enabled it to succeed in the United States to translate well into international markets. "Our purpose-built OS, engineering expertise, OEM partnerships, and free TV capabilities are among the many factors that we expect to contribute to our ability to attract content providers and consumers, and quickly build scale in new markets," management wrote in its third quarter letter to shareholders. Indeed, the company is taking advantage of all of those aspects in its entry into Brazil.

Roku accounts for one in three smart TVs sold in the United States. In the rest of the world, its share is less than 5% of sales. Google's Android TV accounts for more than twice the sales of Roku. Building out a presence in international markets like Brazil by partnering with manufacturers, retailers, and content providers ought to flip those numbers.

Catching up to Amazon

Expanding internationally is key for Roku to catch up to Amazon. The streaming platform rival surpassed Roku's user count near the end of 2018, and Amazon's lead expanded throughout 2019. That said, there are signs of slowing growth for Amazon.

Still, Amazon now counts over 40 million Fire TV users compared to the 32.3 million Roku reported at the end of its third quarter last year.

Roku, however, maintains a substantial lead in both users and engagement in the United States. Establishing a larger presence in international markets, particularly those without a massive presence from Amazon, should enable Roku to start playing catch-up.

While advertising markets are often local (rendering a platform's broader global audience moot), more and more streaming companies are going global. Disney and AT&T, for example, outlined global expansion plans for their flagship streaming services. Comcast said it'll explore international options for Peacock. Apple TV+ is already in 100 countries (and an early partner with Roku in Brazil). And Netflix is a global streaming powerhouse.

Having a large global presence will give Roku additional negotiating power when it comes to distribution agreements with media companies. That could enable it to produce higher margins for its platform business through greater revenue shares.

Entering Brazil is a big step for Roku's international expansion plans in 2020, and it might be just the start.

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
$91.68 (-5.36%) $-5.19, Inc. Stock Quote, Inc.
$2,114.01 (-1.51%) $-32.37

*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
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

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

Premium Investing Services

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