When it comes to success in emerging industries, size usually matters. Pioneers often fail, leaving behind the foundation for larger players to dominate. Thankfully for investors in mold-breaking upstarts, it doesn't always play out that way.
Roku (ROKU -10.29%), Sonos (SONO -0.93%), and Spotify Technology (SPOT 0.20%) are three companies that saw Apple and other consumer tech behemoths try to take them out. The little guys are not just surviving, but thriving against established titans with almost limitless resources. Take a bow Roku, Sonos, and Spotify.
1. Roku
Roku founder Anthony Wood invented the digital video recorder, but it was another company that enjoyed the DVR glory. He got it right when he launched Roku a few years later, pioneering the streaming video revolution. It wasn't long before Roku was joined by some of the most valuable companies on the planet. Apple TV, Alphabet's Google Chromecast, and Amazon's Fire TV hit the market. Roku didn't flinch.
Roku remains the leading operating system for smart TVs in the U.S., Canada, and Mexico. It has roughly double the market share of its closest rival. It doesn't matter that Google and Amazon are willing to practically give away the hardware to get folks connected. Roku has been able to sacrifice product margins, knowing it can make it up in volume.
Image source: Getty Images.
Roku is free to use, making the lion's share of its revenue from ad sharing and referrals. It's working. Average revenue per user is more than $41 over the past year. There are 75.8 million active accounts on the platform, and boy are they active. Roku users are spending an average of 3.8 hours a day streaming through the Roku hub.
It doesn't seem possible. Roku is competing against Apple, a company that is used to getting people to pay a premium for its wares. Alphabet is the global leader in online advertising, putting it in the perfect position to cash in on an ad-supported industry. Amazon is the top dog in online retail, and it aggressively promotes its Fire TV dongles and smart TVs on its platform. Roku is still beating them all.
2. Sonos
Roku's enemies are also rivals of Sonos. It was 2005 when Sonos rolled out the first wireless multiroom speaker system, which streams audio seamlessly through a home. Audiophiles flocked to Sonos, but then familiar foes emerged. Apple, Amazon, and Google all had cheap smart speakers in support of their virtual assistant technologies. Sonos was in their crosshairs if they chose to go upmarket, but they missed.
Sonos would go on to deliver 17 consecutive years of revenue growth before proving mortal in fiscal 2023. On Tuesday afternoon it posted financial results for the fiscal first quarter of 2024. It was a well-received report.
Revenue declined 9%, or 10.5% on a constant-currency basis. It's not pretty, but analysts were bracing for a 13% decline. The bigger surprise is at the other end of the income statement. Profitability improved at Sonos, earning $0.64 a share for the seasonally potent holiday quarter, up from $0.57 a share a year earlier. Wall Street pros were settling for a sharp decline to $0.39 a share.
"Despite the challenging environment, we are winning in the market and outperforming the competition," CEO Patrick Spence said in this week's earnings report.
Rich in cash and patents, Sonos is well positioned to continue dominating its high-end niche. With analyst profit targets now likely headed higher, Sonos is cheap.
3. Spotify
Remember when everyone figured that Spotify was toast? The Swedish audio streaming service was making waves worldwide, but would it be able to succeed in the U.S. as Apple Music, Google Play Music, and Amazon Music flooded the market? It's doing pretty well, even if it had to go through three rounds of layoffs last year.
There are 602 million mostly ad-supported monthly active users, a 23% increase over the past year. Getting folks to pay is the more difficult nut to crack, but Spotify has been beefing up its catalog of original content to go with its industry-leading music platform. Premium Spotify accounts have risen 15% over the past year to reach 236 million.
Apple and Amazon are distant competitors. Google Play Music threw in the towel, handing its digital ambitions over to YouTube Music. It's going to be hard for the other streaming service stocks to catch up to Spotify now.
