When Will Roku Break Even?

by Trefis Team
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We have initiated coverage for streaming media player maker Roku (NASDAQ: ROKU). The company has been growing fast, driven primarily by its digital platform business, which makes money by selling advertisements and distributing streaming content. However, the company remains loss-making, on account of its high operating expenses and the declining margins on its hardware. In this analysis, we break down Roku’s key revenues and operating expenses and look at when the company could reach operating break-even.

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Step 1: Estimating Platform Revenues

  • Roku’s platform revenues have grown from around $100 million in 2016 to about $420 million in 2018, driven by a soaring user base and higher monetization via ads and content sales.
  • We expect the metric to grow to close to $700 million in 2019 (about 65% of total revenues) and to about $ 1 billion by 2020.

Step 2: Calculating Players Revenues

  • Roku’s players division, which sells its streaming hardware, has seen sales rise from around $294 million to about $326 million, driven by lower-priced models.
  • We expect the metric to grow to about $360 million by 2020.

Step 3: Estimating Platform Gross Profits

We expect Roku’s platform gross margins to trend lower, due to:

  • A higher mix of video ads, which have lower margins.
  • Introduction of premium subscriptions, which will be accounted for on a gross basis.

Step 4: Estimating Players Gross Profits

  • Players gross margins could also trend lower, as Roku looks to sell more players at lower prices to get customers onto its platform.


Step 5: Estimating Roku’s Operating Expenses

  • While total operating expenses have grown at ~40% CAGR over the last 3 years, we expect to see slightly lower growth going forward.


We Estimate That Roku Could Reach Operating Break-even By 2020

  • While we expect the company to post an operating loss in 2019, it could potentially break even in 2020.


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