How Does Roku Compare With Comcast & AT&T’s Pay TV Business?

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While Roku (NASDAQ: ROKU) is best known for its streaming media players, the company is increasingly positioning itself as a distribution platform for digital content. Roku delivers content and advertising to viewers, much like pay TV operators, although it is an asset-light business with minimal infrastructure investments and lower user acquisition costs. Roku’s user base has been growing at a rapid clip, driven by the acceleration in cord cutting in the U.S. and increasing licensing partnerships with TV producers for the Roku OS. In this analysis, we compare Roku’s platform business with the major U.S. pay-TV players.

View our interactive dashboard analysis on How Does Roku’s Platform Business Stack Up Versus Major Pay TV Players?

Roku Is Already Ahead Of Pay-TV Companies In Terms Of Its User Base

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Roku’s active accounts grew from 9.2 million in 2015 to about 27 million in 2018, compared to AT&T and Comcast which both saw subscriber declines.

While Pay TV Accounts Are Shrinking, Roku’s User Base Is Soaring

Roku’s base has been growing at over 40% per year, compared to Comcast and AT&T which are losing between 1.5% to 5% of their base each year.

Roku’s ARPUs Are Not Comparable With Pay TV Players

Roku’s platform ARPUs are a fraction of major pay-TV players, since it mostly accounts for content sales on a net basis, with its ad loads also coming in below linear TV.
That said, the metric should improve further with the introduction of premium channels earlier this year and better monetization of ad inventory.

 

Estimating Roku’s Platform Revenues

Roku’s platform revenues have expanded from around $100 million in 2016 to about $420 million in 2018.
We expect the metric to grow to about $700 million by 2019.

Estimating Roku’s Total Revenues

Roku’s total revenues are expected to rise to about $1 billion this year, driven by the platform business, although the Players (hardware) operations should also see modest growth.

Estimating Roku’s Valuation

We are valuing Roku at about 11x projected 2019 revenues.

Arriving At A Price Estimate For Roku

This translates into a price estimate of about $104 per share, which is slightly ahead of the current market price.

 

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