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Roku Investors Should Watch Its Smart-TV Sales in 2022

By Adam Levy – Jan 6, 2022 at 4:52PM

Key Points

  • Roku was the No. 1 smart TV operating system in the U.S. the last two years.
  • Copying that playbook in international markets is a big growth opportunity.
  • SmartTV users can be more lucrative for Roku long-term.

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Smart TVs are the keys to sustainable growth.

Roku (ROKU 0.10%) was quick to proclaim its dominance of the U.S. smart TV market in 2021. "For the second year in a row, the Roku Operating System (OS) was the No. 1 smart TV OS sold in the U.S. according to NPD's Weekly Retail Tracking Service," the company reported in a press release on Jan. 3. It also took the opportunity to announce new manufacturing partnerships in the U.S. and Mexico.

While Roku doesn't generate any revenue directly from smart-TV sales, its success in the area shouldn't be overlooked by investors. Here's why.

A Roku smart TV on a mantel.

Image source: Roku.

Smart TVs account for all the growth in connected TV

Consumers are streaming more and more video on their living room televisions every year. While they have many options for how to stream -- including gaming consoles and dedicated streaming devices -- practically all of the growth in streaming time on televisions comes from native smart TV operating systems, according to research from Conviva.

Viewing time on smart TVs grew 64% year over year in the third quarter last year. That's twice as much as any other streaming video platform and three times faster than the overall streaming market.

It's not as if streaming players aren't selling. Roku's sold half a billion dollars' worth of streaming players over the past year, and Amazon (AMZN -0.84%) recently announced the sale of its 150 millionth Fire TV device. But just as many people are ditching those players for new smart TVs. That's why smart TV sales are so important for Roku, and may be one reason why Amazon's making a bigger push with its own smart TVs.

It's not too late for international markets

Roku dominates the North American market, but its market share in other continents is still well behind the competition. The good news for Roku is that it's not too late. The connected-TV market is more mature in North America. As a result, Roku's 39% share of TV streaming time in the region translates into a 31% share globally, despite single-digit market shares throughout the rest of the world.

But consumers in most international markets still spend the majority of their streaming time on the couch in front of a TV. (Asia is the exception, with a plurality of viewing on desktop computers.)

As streaming grows more popular in other markets, Roku still has an opportunity to take market share from global TV leaders like Samsung and LG. The two electronics manufacturers are dominant in South America, combining for nearly half of the market. They control around one-third of the market in Europe, Africa, and Oceania. 

Taking share will require Roku to execute on the same strategies that found success in the United States -- namely, a combination of manufacturer and retail partners in order to drive sales. It successfully replicated that success in Canada and Mexico. And while each region has its differences, the overall trend toward smart TVs is undeniable.

Smart TV accounts are a big advantage

A smart TV account is vastly superior to a Roku streaming player account.

For one, the expected lifetime is greater. Consumers don't replace their television sets very often, and the cost of doing so is expensive. By comparison, a new streaming stick is less than $50 and it's extremely easy to switch.

Second, Roku can generate more revenue from a smart TV user versus a streaming player user. The Roku home screen is the first thing you see when you turn on a Roku TV, leading to more streaming time over broadcast TV time. Roku can also use built-in audio-recognition technology to recognize content and ads on the TV, leading to better ad pricing and content recommendations. 

So not only are smart TVs the path forward for account growth, they also provide the potential to boost Roku's platform revenue in the long run. Investors should pay attention to what it's saying about its smart TV market share. Roku's international expansion has been slow, but the success in North America is proof the playbook works.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns Amazon and Roku. The Motley Fool owns and recommends Amazon and Roku. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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