Roku's (ROKU 1.38%) highest-growth days may be in the past. But, there's some hope the company may be able to reinvent itself as a successful streaming service like Netflix (NFLX 2.44%) or Comcast's Peacock.
That's the bigger-picture takeaway from numbers recently released by viewership ratings outfit Nielsen anyway. For the first time ever, The Roku Channel racked up enough viewing hours in May to make it onto the list of streaming services Nielsen identifies in its monthly report on the matter. Presumably, The Roku Channel will continue drawing a growing crowd.
It's still too soon to call it a game-changer. After all, the company remains in the red, and its revenue growth is stagnating. Maybe that's a temporary problem linked to economic weakness. Maybe not.
For would-be investors, though, it's a new metric worth watching all the same.
Nielsen's what?
It's called The Gauge. While it's hardly mainstream casual reading, the monthly publication is of interest to anyone keeping tabs on the market share of the streaming industry's biggest names.
June's edition of The Gauge (looking at May's data) featured a new name: The Roku Channel. That's Roku's home-grown streaming service. Although it competes with players like Warner Bros. Discovery's HBO Max and the aforementioned Netflix, it's most akin to free-to-watch, wholly ad-supported services like Paramount's Pluto TV or Fox's Tubi. The Roku Channel earned a spot on the short list of streaming services to watch by virtue of accounting for at least 1% of U.S. consumers' total television-usage time last month, with a total share of 1.1%.
Data source: Nielsen. Chart by author.
It's admittedly not a lot, at least on an overall basis. Given the saturated streaming space and the brutal fight for consumers' attention, though, it's more than a little noteworthy. For perspective, powerhouse Netflix's programming only made up less than 8% of last month's total TV watch time within the United States. HBO Max was barely better, delivering 1.2% of the total content domestic consumers watched in May.
For current and prospective Roku shareholders, however, Nielsen's May 2023 edition of The Gauge means more is simply being in the mix of a crowded streaming market. If it can continue at this pace, digital content itself rather than streaming dongles -- and even its role as a gatekeeper to other streaming services -- could become a breadwinning business.
And none too soon.
More about platform, less about player
You likely know the company best as a manufacturer of streaming dongles and licensed smart-television sets. That's not Roku's biggest business, though. It's not even close to being its biggest business, in fact.
So-called "platform" revenue stemming from its promotion of other streaming services makes up the lion's share of its top line. Of last year's total revenue of $3.1 billion, $2.7 billion of it (87%) came from sources other than the sale of devices. Its platform business is also turning a consistent gross profit, whereas devices are habitually in the red; devices could even be considered a loss leader at this point.
Data source: Roku. Chart by author. All numbers are in millions.
Since the company turned up the heat on its platform monetization efforts back in 2019, however, it seems Roku has had a little more success injecting ads into video streams delivered via The Roku Channel than it seems.
In retrospect, though, perhaps nobody should be too terribly surprised. As the company's first-quarter letter to shareholders plainly explains:
...[its] unique advantages have helped drive The Roku Channel's incredible growth across the platform in the U.S., Canada, Mexico, and the U.K., with Q1 Streaming Hours up 65% [year over year]. The Roku Channel remains a top-five channel on the platform by both Active Account reach and Streaming Hour engagement.
Last quarter's active accounts of 71.6 million was a 17% year-over-year improvement, while The Roku Channel's 25.1 billion streamed hours in Q1 represents 20% more hours than it served up in the comparable quarter a year earlier.
Data source: Nielsen. Chart by author.
Notice that while revenue growth has been nonexistent of late, active account growth and streamed-hours continue to make forward progress at the same pace they made before and during the pandemic.
A glimmer of hope merits a place on your watch list.
Some stats worth watching
It's not a panacea -- at least not yet.
As already noted, Roku is back in the red. Sales, marketing, and research and development spending is more than wiping out whatever of the platform's gross profit the company's able to produce. The current business model's math just doesn't work.
Data source: Roku. Chart by author.
The Roku Channel itself is now too big to simply ignore as a potential stand-alone profit center, though, even if Roku itself isn't serving up any more details than are being laid out here.
Pluto TV's average monthly per-user revenue is on the order of $2, while Comcast's is closer to $6 or $7 per month (and some are suggesting the number is closer to $10), Walt Disney's Disney+ boasts average monthly revenue per user of $4.44, and Hulu's is nearly $12. If Roku can even get The Roku Channel's comparable figure up to a respectable fraction of those numbers and at the same time preserve its existing business promoting other streaming services, that may well be enough to push the company back into the black.
The company's second-quarter results (due late next month) will further flesh out this budding evolution, although Nielsen's next edition of The Gauge (due a few days before that) should be just as telling.
Bottom line? Roku is still far from being a must-have for most people's investment portfolios. The foundation for a new kind of bullish thesis is being laid down, though. At the very least, Roku deserves a spot on growth-minded investors' watch lists.
