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Roku's Catching Back Up to Amazon, and 2020 Could Be Even Better

By Adam Levy – Feb 20, 2020 at 9:20AM

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Roku's user growth significantly outpaced Amazon's Fire TV platform in the fourth quarter.

Roku (ROKU -7.26%) added a record 4.6 million incremental active accounts in the fourth quarter of 2019. That put the video streaming platform up nearly 10 million for the full year, and it's entering 2020 with excellent momentum. The average time spent per account continues to climb quickly as well, with total streaming hours up 60% year over year compared to a 36% increase in active accounts.

Roku's results are especially promising in light of a slowdown in Amazon's (AMZN -4.77%) Fire TV accounts. The retail giant said it surpassed 40 million active accounts by the end of 2019, more than Roku's 36.9 million, but growth slowed considerably in the last four months of the year. Amazon added only about 3 million incremental accounts from September through December.

Roku is already the most popular streaming platform in the United States. The year 2020 may be when it takes back the throne from Amazon to claim global leadership.

A woman sitting in front of a Roku TV.

Image source: Roku.

Last year's international investments will start paying off

Roku's management said that international expansion would be one of its big areas of investment for 2019, but it warned that the investments wouldn't bear fruit until 2020. The company was doing the legwork establishing retail, media, and smart TV manufacturing partners in other countries. We've already seen the efforts start to pay off with the recent expansion to Brazil.

Amazon has historically had a much stronger presence outside of the United States than Roku. Meanwhile, Roku claims to be the No. 1 streaming platform in the U.S., and data from third-party researchers back that up in terms of both active devices and total hours streamed.

"We believe the strengths that have made Roku the No. 1 streaming platform in the U.S. by hours streamed will enable Roku to be successful internationally," management wrote in its fourth-quarter letter to shareholders. 

The company also shared that one-in-four smart TVs sold in Canada is a Roku TV -- the same ratio as in the U.S. There's strong potential for Roku to grab similar market share in other countries. It's already built extensive partnerships with new manufacturers in Brazil, the U.K., and Mexico among other countries. 

While the vast majority of Roku users remain in its home country, CFO Steve Louden said he expects international users will eventually become significant enough for it to break out. "We believe we are at the early stages of a global opportunity for Roku," management wrote in the letter to shareholders.

Strong engagement and monetization momentum

Roku users spent somewhere around 3 hours and 40 minutes per day streaming video on its platform during the fourth quarter. That's an increase of over 30 minutes per day compared to last year despite the addition of 10 million users.

That strong engagement ought to continue to grow. Management predicts half of U.S. TV households won't have a cable subscription by 2024, and it is calling the '20s the "Streaming Decade." 

The launch of several new high-profile streaming services this year and the amount traditional media companies are investing in streaming content and marketing (even compared to their legacy cable TV networks) put Roku in a good position to keep growing engagement. 

In fact, it's arguably better positioned than Amazon or any other competitor. Amazon's business is much more complex than Roku's, which could hinder its streaming platform. As a retailer, Amazon's relationships with other companies can have multiple dimensions. Whereas Roku's focus purely on streaming makes its relationships straightforward. We saw an example of this when Amazon engaged in a drawn-out dispute with Alphabet's Google. Amazon stopped selling Google competing devices, Google stopped supporting Amazon's apps, and Amazon blocked the YouTube App on Fire TV.

That said, Roku isn't afraid to exercise its strength. It nearly blacked out Fox apps for the Super Bowl over a dispute about content and ad inventory. But Roku's sizable user base and strong engagement make it a must-have partner for any company trying to launch a video streaming service.

That fact should have a couple of notable effects on Roku's results. First, it should continue to grow active accounts at a strong pace because it'll support more streaming services than the competition. As more consumers branch out and find new services, Roku will become more attractive for its broader selection of services. Meanwhile, Roku's ability to monetize users will increase as it improves its ability to participate in the economics of the streaming video industry through its continuously improving position in negotiations.

Management says it's planning to invest any additional gross profit into expanding the user base through international expansion, expanding content on the Roku Channel (its homegrown ad-supported streaming service), and improving its advertising and platform technology. Expect the strong momentum Roku showed in the fourth quarter to continue through 2020.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Alphabet (C shares) and Amazon. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Roku. The Motley Fool has a disclosure policy.

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