Why Viacom’s Investment In Roku Will Not Impact Its Valuation?

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Viacom (NASDAQ:VIA)  took part in the latest $ 45.5 million round of funding raised by streaming-media device and platform company Roku, which is being backed by other media companies such as Dish Network and 21st Century Fox. [1] Roku competes with Google’s chromecast and Apple TV and is expected to have 25 million U.S. users by the end of 2016, ahead of Apple TV’s 20.5 million  U.S., users according to eMarketer estimates. [2]. While Viacom’s exact investment in the company is not known, compared to its revenues of around $14 billion in 2015, the investment in Roku is small and gives Viacom a minority stake in the company.  We believe that, through this strategic investment, Viacom is seeking to capture the growth of web streaming, which is gaining ground amidst the so called trend towards cord cutting.  However, the current investment in Roku should not have a significant impact on its valuation, given its small size.

See our complete analysis for Viacom

Roku’s Current Size Not Significant To Impact Viacom’s Valuation

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Roku’s size in terms of total revenues will not have an impact on Viacom’s valuation,  given that the company has taken a minority stake. As such, Viacom will not consolidate Roku’s revenues, which were estimated to be $200 million in 2014 and projected to be in the range of $275-300 million in 2015. The company was expected to be profitable in Q1 of 2015. [3] The streaming media player market is expected to witness a strong growth in future, with the NPD estimating that 40 percent of U.S. Internet homes will have a streaming media player by Q1 2017, compared to the 16% figure in Q1 2014. [4]  This growth will not exponentially increase Roku’s revenues.

International network revenues along with MTV and Nickelodeon account for nearly 70% of Viacom’s revenues (nearly 9 billion in 2016) according to our estimates. You can see this in the graph nearby.

Viacom 230216

We believe Viacom’s investment in Roku is strategic in nature which can enable the company to gain insights into the streaming services industry and establish itself in this space in future, but should not impact the company’s valuation in the near term.

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Notes:
  1. Viacom Acquires Stake In Roku, Variety, February  19, 2016 []
  2. Ref 1 []
  3. Bankers Say Roku Will Go Public Soon, Project Revenue of $275 M- $300M In 2015, Streaming Media Blog, January 2015 []
  4. Streaming Media Player Penetration To Reach 40% of U.S. Internet Homes by 2017, NPD, January 2015 []