Roku, Inc. (ROKU)
In Q1, we invested in ROKU at an average price of $32.35, which returned 99.41% in the quarter. In ROKU, we see a situation unfolding in line with the historical fact patterns we have observed in several other industries. Specifically, we believe that the purpose-built operating system developed by ROKU for the smart TV will achieve industry scale at the expense of homegrown operating systems, much like how Windows OS overtook mainframe operating systems in personal computers, and Android OS overtook Windows OS in cellular phones. As the aggregator in smart TV operating systems, ROKU’s first mover advantage and industry scale will enable them to grow the subscriber base over 400% from current levels, all while doubling ARPU.
ROKU is in the early stages of the streaming TV growth curve. A 27 million subscriber base provides a critical mass of early adopters as the business is set to cross the chasm towards widespread adoption in the 126 million US household total addressable market. As the movement from linear TV to OTT streaming accelerates, ROKU is the aggregator business that owns the funnel of end users. Having this direct relationship with users is important because every new streaming service will have to sign contracts with ROKU, as ROKU controls the demand side economics. As the depth and breadth of content offering on ROKU’s platform grows, the subscriber base and the number of hours streamed will continue to grow. As the subscriber base expands, the $70 billion TV advertising market will increasingly follow subscribers from linear TV to digital TV. As users, hours streamed, and content grow, more data will be collected on user behavior, purchase intent, and engagement, driving the model driven business to further leverage data and analytics to improve advertiser campaign results, and thus, cost per impression, and ARPU. In summary, ROKU has a long runway to grow subscribers, while growing ARPU, and at our entry price of $32.35, we expect that our investment will compound for years to come.