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Can Roku's Recent IPO Success Continue?

Written by Monica Savaglia
Posted October 3, 2017 at 4:37PM

A few weeks ago, I wrote about video streaming company Roku and its upcoming IPO.

As expected, the company made its market debut last Thursday, September 28th, and it was a huge success, probably even better than Roku (NASDAQ: ROKU) was hoping. 

The company was aiming for $252 million in its public offering, and it got just that. The success of its IPO left the company with a valuation of $2.6 billion. Roku will be using the money it earned from its public offering to stay ahead of its competitors.

Roku has been able to effectively compete with Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), and Google (NASDAQ: GOOG)... and with their devices: Amazon Fire TV Stick, Apple TV, and Chromecast.

Most of the company's revenue is generated from its hardware devices and from licensing its operating systems to smart TV manufacturers. Roku has 15 million active accounts, and in 2016 it made $400 million in revenue.

Unlike its competitors, Roku doesn’t want to limit what people stream on its platform. Just like you, I enjoy having my choices and having them available in the most convenient way, and that's exactly what you're getting from Roku.

In Roku’s S-1 filing to the SEC, the company said its mission is to be the “streaming platform that connects the entire TV ecosystem,” and so far the company has been successful, which can easily be seen by its 13.3 million subscribers who spend on average 2.5 hours per day streaming TV.

An IPO Success

Roku priced its IPO last Wednesday at $14 per share — at the high end of its initial price range. The company’s first day of trading on Thursday went way better than expected.

By close of markets on Thursday, Roku was trading at $23.50, an astounding 68% increase! Success continued to follow the next day, with Roku closing on Friday at $26.54. The company was up 90% in less than 48 hours of trading.

Roku has been celebrating its success, but this doesn’t mean the company can sit back and relax. Now, Roku is in the position of having to put in even more work than ever before so it can maintain its success and keep investors happy.

The IPO Aftermath

Roku opened up on Monday, October 2nd at $26.54. Its stock saw its first fall on Monday, closing the day at $23.56 — an 11% decrease.

After being modest in its IPO pricing and following the success of the company’s market debut, this downfall probably came as a shock to most, especially those who were hoping for even bigger gains.

On Monday, October 2nd, Roku announced an updated lineup of its video streaming devices. Lately, the company has been slashing prices on its devices to make them more affordable and appealing to customers.

If Roku can get customers on board with its streaming device rather than an Apple TV, Chromecast, or Fire TV Stick, then it all seems worthwhile in the end.

According to Roku’s 2016 growth rate, its annual revenue could reach $623 million by 2018. This kind of growth could put Roku share prices at a level that's expensive compared to other Silicon Valley consumer tech companies.

Companies like Fitbit (NYSE: FIT) and GoPro (NASDAQ: GPRO) are similar to Roku in this sense. Both of those companies had successful IPOs that sent their stocks surging because Wall Street and investors were attracted to their products.

And that’s all well and good until new competition steps in and changes everything for that dominating company.

Both Fitbit and GoPro have lost money within the last year, and their stocks have dived down about 90% from their record highs. Roku could very well be on a similar path.

It’s too early to determine if Roku’s success will continue. Investors have been disappointed this year, especially when it comes to tech IPOs that were anticipated to be huge.

In case you forgot, two of the biggest IPO disappointments this year were Snap (NYSE: SNAP) and Blue Apron (NYSE: APRN).

Investors were attracted to Roku and saw it in a different light than Snap and Blue Apron because they saw the company having a huge opportunity to obtain and maintain a dominant position in the TV streaming market.

Roku has been reducing the price of its devices to intrigue customers, but what it needs to start focusing on now is making sure it can continue maintaining a lead in market share and to start making money.

Following Roku’s IPO, CEO Anthony Wood wants investors to see the company as more than just a hardware company; instead, he wants them to know the company as a “content distribution platform.” This view of the company will further open up business to advertisers who are looking to spend a lot of money. 

Roku provides a platform for streaming, but it also generates a lot of its revenue from advertising on its home screen. The company offers more than 5,000 streaming channels in the U.S., and that's a massive opportunity for advertisers looking to reach a large audience.

The company has a lot of potential in its market, but it now needs to start showing its investors that it’s capable of making money and growing so it can sustain its stock level.

Until next time,

Monica Savaglia
Wealth Daily

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