Why Roku May Become the Winner of the Streaming Wars

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August 8, 2019

As more media companies like WarnerMedia, Comcast, and Disney launch their own services, platforms like Roku are benefiting from the increased competition.

And as more consumers are cutting the cord, they need devices like Roku ($ROKU) to stream the latest shows and movies.

"We are the place where these services will connect to the users," Roku CFO Steve Louden told Cheddar. "We have the best audience development tool kit in the industry. We are set up to help them drive new subscribers, get engagement to their apps, or they can choose to also include their content on in The Roku Channel."

Roku reported its Q2 earnings on Wednesday, and the company vastly surpassed analyst expectations for revenue, earning $250 million versus the $224 million Refinitiv estimate. It lost 8 cents per share, compared to the expected loss of 22 cents per share.

More than 1 million people quit cable or satellite service in the first quarter of 2019 creating "the worst multichannel video quarter sub loss quarter in history," according to industry analyst Rich Greenfield. About 3.2 million unsubscribed in 2018.

Roku only benefits from this shift. It now has more than 30 million active accounts, making it the number one streaming media player in the U.S. Average revenue per user (ARPU) hit $21.06.

Not only does Roku derive revenue from various subscription apps on its platforms, it also sells advertising on some of its content like the The Roku Channel. This ad support allows brands to get in front of cord-cutters, which make up about half of Roku's user base.

As more companies invest in content, it draws in more viewers for longer. Roku accounts already watch an average of 3.5 hours a day. Monetized video ad impressions doubled this past quarter, and the company believes the trend will continue throughout the year.

"More content translates into more engagement, and that gives us more opportunity to monetize over time," Louden said.

Louden did not indicate when he expected Roku to be profitable, however. Increases in revenue are reinvested into strategically growing the company, he added. While competitors like Amazon Fire — which recently announced 34 million active accounts in May — and Apple TV begin to take up more space in the marketplace, Louden is confident Roku is making the right choices to ensure its continued success.

"We have an express strategy of running the company at EBITDA [Earnings Before Interest, Depreciation and Amortization] break even," Louden said. "So as we continue to grow revenue and gross profit, we are actively reinvesting that incremental gross profit in strategic areas like the advertising business, the Roku TVs, the Roku Channel, and international channels. We are choosing to run at these levels because it's early days. We have the lead in the U.S., and it's widening."