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Roku Shares Surge Over 40% in IPO: Should Apple and Amazon Be Worried?

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Streaming hardware company Roku Inc. started trading on Wall Street today. The company priced its 18 million share initial public offering at $14 per share, which is at the top end of its expected price range.

The stock, which trades under the ticker “ROKU,” debuted on the Nasdaq, and soared as much as 30% above its IPO price initially. But as of 12:26 AM EST, shares of ROKU are trading up over 43% to $20 per share.

Roku’s IPO follows that of two other high-profile market debuts this year: Snapchat parent Snap (SNAP - Free Report) and meal-kit giant Blue Apron (APRN - Free Report) .

Snap was the biggest technology company to go public this year, but since its much-hyped IPO, its stock value has been cut almost in half as investors saw how easily Facebook (FB - Free Report) ’s Instagram could simply copy Snapchat’s most popular features. Blue Apron, of course, was hit hard by Amazon’s (AMZN - Free Report) mega deal to acquire organic grocer Whole Foods, and the investor skepticism that followed.

Based in Los Gatos, California, Roku is known for those tiny little black boxes that you can access Netflix (NFLX - Free Report) , and unsurprisingly, it makes most of its money from selling its streaming video players. The company brought in $398.6 million in revenue last year, up 25% from $319.9 million in 2015. And in the first six months of this year, revenues were $199.7 million, representing a 23% jump from the year-ago period.

Roku, however, is still unprofitable. In 2016, it posted a net loss of $42.8 million compared to a loss of $40.6 million the year before. But, during the first half of this year, Roku’s reported net loss of $24.2 million narrowed from $33.2 million in the first half of 2016.

Roku has also been expanding its advertising business. According to its IPO prospectus filed last month, the company hopes to increase the number of hours streamed by each user, and then monetize those hours through advertising.

In an interview with CNBC, CEO Anthony Wood said that "Advertising is our bread and butter. As the world moves to streaming, that means all TV advertising is moving to streaming. There is a huge opportunity to become the next generation advanced TV ad platform.”

Additionally, Roku has been able to steadily increase its customer base. It now has 15 million monthly active accounts, and boasts 6.74 billion hours of content streamed. One can point to its wide selection of TV apps available on its devices for this growth—it has over 3,000 channels—with top choices available like Netflix, Amazon Prime Video, Hulu, HBONow and Starz.

Can It Compete?

While it’s a popular name among cord-cutters, Roku must now prove to investors that it can compete with the tech industry’s leaders. Amazon, Apple (AAPL - Free Report) , and Alphabet (GOOGL - Free Report) are arguably Roku’s biggest competitors, and each sell streaming devices and products like the Fire TV stick, the Apple TV, and Google Chromecast.

Roku addressed the crowded streaming market in their prospectus as well, recognizing it as a risk and saying that “These companies have the financial resources to subsidize the cost of their streaming devices in order to promote their…products and services making it harder for us to acquire new users and increase hours streamed.”

Despite heavyweight rivalry, Roku has managed to find and maintain its footing. According to research firm EMarketer, Roku claims 32.6% of the country’s 150 million connected TV users in 2016, ahead of Google at 29.9%, Amazon at 26.3%, and Apple at 19.9%.

Roku’s edge, it seems, comes in form of its ability to offer everything and not step on any toes. Where Google, Amazon, and Apple are blocking rival services and products—Google recently pulled its YouTube video Service from Amazon’s Echo Show device, and Netflix was not initially included in one of Apple’s TV apps—Roku offers its users a wide range of streaming options.

Even though CEO Wood isn’t worried about his company’s ability to compete, investors will have to decide if Roku’s market share and option-oriented platform are enough to set the streaming device maker apart.

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