Roku Stock

Roku, Inc. (Roku) operates as a TV streaming platform in the United States by hours streamed.

The company pioneered streaming to the TV. Through the company’s TV streaming platform, the company connects viewers to the entertainment they love; enable content partners to build, engage, and monetize large audiences; and provide advertisers with unique capabilities to reach viewers.

To continue to grow the company’s Active Accounts, the company must maintain and expand retail sales channels for the company’s products and for the Roku products sold by the company’s partners or licensees. The majority of the company’s products and the company’s licensed Roku TV partners’ products are sold through traditional brick and mortar retailers, such as Best Buy, Target, and Walmart, including their online sales platforms, and online retailers, such as Amazon.

The company also sells certain products directly through the company’s website and internationally through distributors and retailers, such as Coppel in Mexico, Magazine Luiza in Brazil, MediaMarkt in Germany, and Currys in the United Kingdom. Amazon, Best Buy, and Walmart in total accounted for 71% of the company’s devices revenue for the year ended December 31, 2023.

Strategy and Business Model

The foundation of the company’s platform is the Roku operating system (the ‘Roku OS’), which is purpose built for TV streaming, and powers Roku streaming devices. The Roku OS is designed to run on hardware, which enables Roku streaming devices to be sold to customers at competitive prices. The Roku OS connects viewers to the company’s streaming platform via a broadband network, giving them access to a wide selection of content through a streaming experience that is both delightful and easy to use. The company provides updates via the Roku OS to continuously deliver an exceptional TV streaming experience.

The company dedicates significant resources to build, maintain, and advance the Roku OS; to provide an industry-leading streaming platform for the company’s viewers, content partners, and advertisers; to obtain content for the company’s streaming platform that attracts viewers, including the company’s own original programming (Roku Originals); and to extend Roku’s leadership as the global shift to TV streaming continues.

The company’s three-phased business model—grow scale, grow engagement, and grow monetization—drives the company’s intention as a global streaming platform that connects and benefits the TV ecosystem of viewers, content partners, and advertisers. The company leverages its ownership of its streaming platform to help the company’s viewers find content across the streaming universe, while simultaneously growing monetization.

Scale: Increasing the number of Active Accounts

The company makes access to TV streaming affordable through a broad lineup of devices, at a variety of competitive price points, including Roku TV models, Roku-branded TVs, and Roku streaming players.

Roku TV models are TVs made and sold by the company’s Roku TV partners, which are TV original equipment manufacturers (‘OEMs’) that license the Roku OS and leverage the company’s smart TV reference designs. The company has driven strong Active Account growth through the company’s Roku TV licensing program, which the company launched 10 years ago.

In 2023, the company launched Roku-branded TVs, which are designed, made, and sold by the company. The Roku Select and Roku Plus Series TVs are available at Best Buy, Amazon, and Costco in the United States; and the Roku Pro Series TV is expected to be available in spring 2024. Roku-branded TVs complement the company’s successful Roku TV licensing program. The company’s Roku-branded TVs will enable the company to further grow its leadership position in TV streaming and expand into the higher-end range of performance TVs. Roku-branded TVs will also help the company innovate more quickly in all aspects of hardware and software and test directly with viewers, improving the product and viewer experience and strengthening the entire Roku ecosystem.

Roku streaming players enable users to easily turn (nearly) any TV into a smart TV. On a periodic basis, the company launches new streaming player models with a focus on offering high performance.

The company also licenses the Roku OS and its streaming player designs, as well as provide ongoing technology and support services, to certain international pay TV and telecommunications service operators that distribute co-branded streaming players to their subscribers in their markets.

The Roku ecosystem extends beyond TV streaming to smart home devices that include cameras, video doorbells, a home monitoring system, plugs, light bulbs, and light strips, along with the company’s Roku Smart Home mobile application for iOS and Android. Similar to the company’s TV streaming business model, the company builds scale by selling Roku Smart Home devices and then monetizes through smart home services. The company offers subscription plans for the company’s cameras, video doorbells, and home monitoring system.

Audio is an important part of the TV streaming experience, and the company also offers Roku-branded wireless speakers and subwoofers that seamlessly connect to TVs powered by the Roku OS.

Through the company’s streaming devices and the Roku platform, the company provides viewers tremendous choice, value, and an exceptional viewer experience. In 2023, the company added 10.0 million net Active Accounts, ending the year with 80.0 million Active Accounts.

Engagement: Growing Streaming Hours

The company’s Streaming Hours were 106.0 billion hours in 2023 through the increased distribution of Roku streaming devices, increasing the company’s Active Accounts, and continuing to enhance the company’s viewer experience.

The Roku Home Screen Menu (left navigation bar) contains features, such as Live TV, Sports, and What to Watch. In 2023, the company launched enhancements to make it even easier for viewers to find and discover great entertainment. For example, the company is enabling more personalization through recommendations and features that allow viewers to track TV shows, movies, and sports teams. Additionally, Roku’s powerful universal search makes it fast and easy when viewers are looking for specific content.

The company also empowers viewers to choose how much they want to spend on content by offering them a broad array of ad-supported, subscription, and transactional options. The company’s direct relationship with customers provides the company with detailed insights about their behavior on the company’s streaming platform, including certain content viewers search for, the apps viewers install and watch, and the types of content that viewers purchase or subscribe to on the company’s platform. This first party data enables the company to develop actionable insights, such as content recommendations to improve the company’s viewers’ experience.

One of the key engagement drivers on the company’s streaming platform is The Roku Channel, the company’s owned and operated streaming app. The Roku Channel aggregates a broad variety of entertainment into a unified streaming experience, through three distinct types of content:

AVOD (ad-supported video on demand): Users can stream a broad variety of 80,000+ movies and TV shows, including Roku Originals, for free.

Live TV: Users have access to watch 400+ FAST (free, ad-supported linear streaming TV) channels.

Premium Subscriptions: Users can easily sign up, view, and manage subscriptions to dozens of streaming services that require a subscription. such as Paramount+ and AMC+ with a single, monthly bill.

The Roku Channel benefits from its integration with the company’s streaming platform, which has features, such as Live TV, Sports, What to Watch, and more that can surface content from The Roku Channel to the company’s viewers directly from its home screen and throughout a viewer’s streaming journey on the company’s platform. In 2023, The Roku Channel was a top 5 app on the company’s platform by both Active Account reach and Streaming Hours.

The foundation of the company’s content strategy for The Roku Channel is third party licensed content and, to a smaller extent, Roku Originals. The company’s content spend is intended to be commensurate with the growth trajectory of The Roku Channel and with the broader macroeconomic environment. The Roku Channel is available on devices powered by the Roku OS in the United States, the United Kingdom, Canada, and Mexico. In the United States, it is also available online at TheRokuChannel.Roku.com, and on Amazon Fire TVs, Samsung TVs, Google TV, and other Android TV OS devices.

Monetization: Growing the company’s revenue and gross profit by monetizing user activity

The company generates platform revenue primarily from the sale of digital advertising (including direct and programmatic video advertising, media and entertainment promotional spending, and related services), as well as streaming services distribution (including subscription and transaction revenue shares, the sale of Premium Subscriptions, and the sale of branded app buttons on remote controls). Previously, the company referred to streaming services distribution as content distribution services. The company’s TV streaming platform enables content partners and advertisers to reach audiences that are increasingly unreachable on traditional TV. Each user on the company’s streaming platform creates multiple revenue opportunities for Roku through activities, such as navigating through the Roku home screen, watching ad-supported content, or signing up for subscription services.

The company makes it easy for content partners to distribute and monetize their streaming content through three primary business models: subscription video on demand (‘SVOD’), which includes subscriptions to individual video on demand apps and so-called virtual multichannel video programming distribution (‘vMVPD’) services; ad-supported video, which includes ad-supported video on demand (‘AVOD’) apps with on demand content that do not charge a subscription fee to users, as well as free ad-supported streaming TV (‘FAST’), which the company defines as free, ad-supported linear streaming TV; and transaction video on demand, which includes apps that offer a la carte content purchases or rentals. Through Roku Pay, the company’s proprietary billing solution, the company is also able to assist content partners with billing services, including billing users for in-app purchases like content rentals, managing subscriptions, and customer invoices. Roku Pay allows content partners to enable a frictionless signup within their app, and this key benefit simplifies user subscription signups and drives purchase and retention for the company’s content partners.

Content partners also have access to the company’s media and entertainment tools to help them attract, engage, and retain viewers by investing in promoting their content on the company’s streaming platform. Content partners can use a variety of ad placements, including native display ads on the Roku home screen or a screen saver to drive app downloads, promote an app’s content, and direct traffic to their apps in order to drive subscriptions or movie and TV show consumption. The company also derives revenue from the sale of branded app buttons on streaming player and Roku TV remote controls that are intended to increase incremental usage of an app by allowing viewers to launch straight into the app from any screen. The company’s analytics and reporting assist content partners with analyzing viewership trends and metrics for specific titles, and the company also can help content partners target new audiences that are more likely to subscribe to their services.

The company offers advertisers a unique and effective set of tools to reach viewers both on and off the company’s streaming platform. Advertisers are able to leverage the combination of the company’s significant scale, its direct relationship with viewers, and the company’s advertising capabilities to serve relevant advertisements. Advertisers on the company’s platform also can measure both the effectiveness of the ads served and their return on investment.

The company is developing new and deeper relationships with third-party ad-buying platforms (retail media networks, demand-side platforms (‘DSPs’), and other strategic partners) to meet marketers where they are buying programmatic advertising. At the same time, the company’s specialized ad products (such as Shoppable Ads, the Kroger Shopper Program, native ad formats, and the company’s audience guarantees) are accessible only on the company’s advertising platform. This overall approach protects the company’s strategic assets, while creating additional demand opportunities for its ad inventory. Advertisers can use third-party DSPs or OneView (the company’s ad-buying platform) to set up, make changes, and measure ad campaigns entirely on their own.

The company offers engagement analytics such as ad impressions served, click-through rates, and video completion rates. The company works with a wide variety of third-party measurement companies to measure the branding impact of the ads served and audience demographics, validate ad effectiveness, and quantify sales lift from advertising on the company’s platform. Furthermore, the company has relationships with third-party providers that focus on transactional or point of sale data, which enables the company’s advertisers to compare the effectiveness of ads served on its platform to advertising on traditional TV. Additional promotional advertising opportunities include content sponsorships that give viewers the opportunity to experience a free movie or show and sponsored themes in the company’s viewer experience and shoppable ads that allow viewers to buy products directly from the TV screen. With shoppable ads, the company is adding more performant tools and more partnerships to expand the capabilities the company can offer advertisers.

The Roku Channel is also a core strategic asset in the company’s monetization efforts that simultaneously benefits viewers, content partners, and advertisers, while generating increasing platform revenue. For viewers, The Roku Channel is a compelling destination for a diverse selection of free and paid entertainment. For content partners, The Roku Channel provides a variety of options to distribute and monetize content through both licensing agreements and Premium Subscriptions. And for both content partners and advertisers, The Roku Channel delivers a large and engaged audience at scale that will continue to grow. Owning and operating both The Roku Channel and the streaming platform creates unique value, making the company a leader in free content, positioning the company to be a valuable partner to content partners, and providing a large source of ad inventory.

Business Growth

Investment in Growth

The company must regularly update and enhance its streaming platform to meet evolving viewer behavior and provide a best-in-class content delivery and advertising platform. The company must provide content partners with best-in-class publishing tools and actionable audience insights. The company must continue to innovate and invest in its advertising capabilities and technology so that the company attracts and encourages incremental advertising spend on the company’s platform.

Advertising Innovation

The company continues to innovate its advertising offerings. In 2023, for the first time, Roku City (the company’s dynamic screen saver) was opened for major advertisers in a broader range of verticals, such as McDonald’s, Mattel, and Carnival Cruise Line, which have integrated brand-specific visuals into its iconic screen saver. The company also announced a number of partnerships to expand the value the company can deliver to marketers. For example, the company partnered with DoorDash to allow their merchants to place click-to-order offers within their Roku ads, and with Instacart to help consumer-packaged goods (CPG) advertisers measure whether users are purchasing products on Instacart after seeing an ad on the company’s streaming platform. Building on the Shoppable Ad technology that the company launched with Walmart in 2022, the company partnered with Shopify to enable users to purchase products from Shopify merchants directly from Roku devices. And Spotify partnered with Roku as its first TV streaming partner to introduce video ads in the Spotify app on Roku devices.

International Markets

Roku streaming devices are available in 15+ countries. The company is the leading TV streaming platform in the United States and Mexico by hours streamed.

Internationally, the company continues to grow its footprint and deepen its presence in key markets. In Mexico, the company announced RCA as a new Roku TV partner, an 8K Roku TV model with TCL, and new Roku TV models with Philips. Building on the company’s expansion in Latin America, the company announced Roku TV models with Caixun in Chile and the launch of RCA Roku TV models in Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. In the United Kingdom, the company announced Roku TV models with JVC (at Currys stores), Polaroid, and Sharp. And in Germany, the company expanded its Roku TV program with its third TV OEM partner, Coocaa. In international markets, the company will continue to focus on building scale first, increasing engagement, and ultimately driving monetization.

The company is successfully growing The Roku Channel internationally. The Roku Channel is available on devices powered by the Roku OS in the United Kingdom, Canada, and Mexico. With strong scale and engagement, and the launch of the company’s digital advertising business in 2022, the company has begun to monetize in Mexico.

Sales and Marketing

The company engages in a wide variety of sales and marketing activities to continuously grow scale, engagement, and monetization and dedicate significant resources to this area. The company’s sales and marketing activities are primarily focused on building and expanding relationships with content partners, advertisers, TV brands, retailers, and service operators, and driving sales of the company’s products and its licensed Roku TV partners’ products to consumers through retail distribution channels.

The company has dedicated business development teams that develop and maintain relationships to promote and build awareness of the features and advantages of the company’s streaming platform among content partners, advertisers, TV brands, and service operators. The company’s data science team supports the company’s sales and marketing efforts by analyzing data on the company’s platform to increase effectiveness for its content partners and advertisers, as well as for the company’s consumer marketing campaigns. The company’s relationship with content partners is typically client-direct. Through the company’s dedicated content partner relationship management team, the company enters into agreements with content partners to distribute their apps on its platform, or license their content for The Roku Channel, or both. As part of the company’s distribution agreements with AVOD apps, the company typically secures direct access to a portion of the content partners’ video ad inventory for the company’s monetization, and the company’s sales efforts are differentiated and complementary to that of the company’s content partners. Whereas the company’s content partners typically feature their brand and content in their sale, the company focuses on delivering a large streaming audience across many apps and via other Roku branded experiences, such as the company’s home screen at once using its own data. The company sells advertising to a wide range of advertisers helping them reach their goals across numerous key performance indicators.

The company is developing relationships with more third-party ad-buying platforms (e.g., retail media networks, DSPs, and other strategic partners) to reach marketers buying programmatic advertising on such platforms and to create more demand opportunities for Roku ad inventory. The company’s sales teams and products are organized into groups that specialize in the unique needs of each area: (i) agency holding companies and Fortune 500 brands, (ii) independent agency and mid-market clients, (iii) content partners and entertainment brands, (iv) performance and direct-to-consumer brands, (v) international markets, and (vi) local advertising.

The company works with its licensed Roku TV partners to assist in all phases of the development of Roku TV models, including planning, manufacturing, and marketing. In the United States, the majority of the company’s products and its licensed Roku TV partners’ products are sold through traditional brick and mortar retailers, such as Best Buy, Target, and Walmart, including their online sales platforms, and online retailers, such as Amazon, and to a lesser extent the company’s website (excluding Roku TV models). The company also sells products internationally through distributors and to retailers. The company supports retailers with an experienced sales management team and works with these retailers to assist with in-store marketing and product mix forecasting.

Seasonality

The company has historically seen seasonality in its business related to advertising and device sales. The company’s revenue and gross profit are traditionally strongest in the fourth quarter of each fiscal year (year ended December 2023) and represent a higher percentage of the total net revenue for such fiscal year due to higher consumer purchases and increased advertising during holiday seasons. Furthermore, in preparation for the fourth quarter holiday season, the company recognizes significant discounts in the average selling prices of its streaming device sales through retailers in an effort to grow the company’s Active Accounts, which typically reduce its devices gross margin or results in a devices gross loss in the fourth quarter.

Manufacturing

The company outsources the manufacturing of its products to its contract manufacturers, original design manufacturers, and other contractors and vendors. All of the company’s products are manufactured in the People’s Republic of China, Southeast Asia, and Brazil. The company’s manufacturers procure components and assemble its products to demand forecast the company establishes based upon historical trends and analysis from the company’s sales, operations, and product management functions. The manufacturers ship the company’s products to its third-party warehouses in the United States and to the company’s distributors in the United Kingdom and Brazil where the company ships its products directly to retailers, wholesale distributors, and consumers.

Intellectual Property

As of December 31, 2023, the company had approximately 1,300 issued patents and 500 pending applications in the United States and foreign countries.

Competition

Large technology companies, such as Amazon, Apple, and Google offer TV streaming devices that compete with Roku streaming devices made by the company and its licensed Roku TV partners.

History

Roku, Inc. was founded as a limited liability company in Delaware in 2002 and subsequently incorporated in Delaware in 2002.