Roku On This Rise: Incredible Record-Breaking Streaming Period Pushes San Jose-Based Company Forward

Last Updated on June 21, 2021

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Roku is sitting on a $45 billion valuation with stock prices hovering around $350, and its pathway to success has only just started. The San Jose-based company, which manufactures digital media players for video streaming, has experienced a rapid rise since it went public less than four years ago.

Roku originals on the Roku Channel created a launching pad for a record two-week streaming period between May 20 and June 3. This growth hasn’t been accidental. Roku’s strategy was a calculated one, supported by key players in the entertainment and tech markets, and a master plan by its CEO and founder, Anthony Wood.

Wood, who was adamant about Roku’s eventual dominance in the market, outsmarted the competition, and lead his company to take 33 to 39 percent market share every year since 2015. Wood’s company tied with Amazon Fire TV in early 2021 and beat out Apple TV (12 percent) and Google Chromecast (8 percent) by a lot.

 

The Stock’s Rise

Roku is part of a larger trend that is seeing viewers leave traditional television in favor of streaming services and other at-home entertainment options. This shift has given the company better placement in the market, resulting in a massive increase of active user accounts. 

In March, Roku has 53.6 million active user accounts
, a 2.4 million increase from the previous quarter. Simultaneously, the company has increased its average revenue per user, making $32.14 in the first quarter, which is up 32 percent from the last year. Top this off with an expansion, (Roku now operations in more than 20 countries, including the U.K. Mexico, and Brazil), and business is officially booming.

Following Covid-19’s inadvertent effect on the entertainment industry, share prices have hit new heights, with a surge to over $450 per share in February. The stock has since dropped off, but even now, many deem Roku stock a must-buy.

The company reported profits for the first quarter, the second straight quarter of profitability, despite analysts predicting no profits. It earned 54 centers a share on sales of $574.2 million in the March quarter, and experts claimed the company would lose 13 cents a share on sales of $490.6 million. With Roku’s original content being added to the laundry list of services, the media company seems like it will only grow stronger, solidifying itself as a permanent member of the streaming wars. This success, however, did not happen overnight.

The Path

 

Roku had a long and winding road ahead of it back in 2008. As a startup, it was looking to take on some big guns, such as Xbox, PlayStation, Samsung, and Apple TV. Netflix founder Reed Hastings was quick to dismiss its chances, “Frankly, we didn’t think Roku had much of a chance.” Still, Anthony Wood didn’t quit and eventually convinced Netflix to let the company make a streaming video box for Netflix. 

 

Hastings, who had a plan of his own, eventually budged, spinning out a division to Roku, tasked with creating a box with Netflix built-in. Roku grew overnight, receiving an unfinished prototype, patents, and around 30 Netflix employees to finish Netflix’s master plan – a device that would bring Netflix to more TVs than ever before. The trade gave the streaming service 15 percent of Roku’s equity. 

 

Though not the smartest decision in retrospect, Netflix sold its Roku shares to Menlo Ventures, a venture capital firm with confidence in Wood’s and his plan for technological dominance in the entertainment market. Netflix sold its stock in 2009, making a solid $1.7 million return. In just over 11 years, that stock would be worth $7 billion. 

 

“Obviously in hindsight, we missed a fortune,” Hastings admitted. Despite the sale, Wood pursued. Without Netflix on its side, there would be a lot of roads to pave before things got better. First, it needed to figure out its place in the market. Many, including investors, were confused by the company’s structure. What was it? Eventually Wood found his footing, knowing it was more than a piece of hardware, but a platform for viewers to find all of their favorite streaming services in one place.

 

Now, after the media industry pivoted to a direct-to-consumer world, Roku has won over a lot of confidence – sparked by its ability to guarantee distribution to more than 50 million households. Roku is to thank for making millions of TVs capable of streaming Netflix, HBO Max, and more. 

 

That pathway to success was multi-faceted. First, Anthony Wood directed his team to build a simplified box that consumers would want to use. However, it was more than just hardware to Wood. It was also a service company, which could make revenue from channel store fees and a share of advertising from every TV app. Before long, Wood’s strategy was finalized and the execution has brought Roku to the masses (and money in its pocket). 

 

The Strategy

 

Roku gained Netflix, Amazon Video on Demand, and MLB TV. With big content partners already in the bag, more wanted a slice of the pie. Roku was bringing streaming to the masses. It has since added HBO Max, Peacock, and Disney+, as well as plenty of other streaming services that give both the hardware and company its edge. Its operating system is also being used for more than 15 brands of smart TVs, a key point in Wood’s strategy. 

 

With help from the pandemic, Roku has more than 53 million active accounts, and a large portion of the market share. The strategy: Wood built an unchanging user interface and simple remote control. From there, it partnered with huge brands and made those brands accessible to the public. TV watchers pop on the simplistic media device, select their streaming platform, grab a beer, and watch their favorite content. 

 

Still, Wood wasn’t satisfied with viewers, he wanted profits. Wood developed key strategic points to maximize profitability and make more money from the hardware the company is now selling so well.  For example, when Roku agreed to distribute Peacock, it took about 10 percent of its ad inventory to sell for itself. Last year, Roku raked in $510 million from hardware and branded smart TVs. Its platform services, however, have garnered it a whopping $1.3 billion. 

 

The Kingdom Roku Built

 

Wood built his company with over a decade of ingenuity and creativity, propelling it past skeptic investors and corporate giants dominating the space. Carolan, a partner at Menlo Ventures, which invested a lot of time and resources into Roku’s success, was confident in the future. Its strategy was clear-cut. 

 

“I remember this PowerPoint deck I presented around 2009, 2010 where I kind of laid it all out,” Carolan had recalled in an interview. “We called it our popcorn strategy because movie theaters don’t make money off movies, they make money off the popcorn. How are we going to continue to incrementally add services revenue?”

 

It did. Carolan said several CEOs, tech-billionaires, and other potential investors didn’t see Roku in the market, even when it was making a profit. Now, Roku’s simplistic design and quality partnerships with streaming services have brought it to the top – and its cut of the ad revenue and media sales has fattened its wallet. 

 

The Road Ahead

 

Roku, much like Netflix, has begun to invest in its own content. Right now, Roku’s channel is licensed from other media companies and studies. More than 40,000 free movies and TV shows make up a massive library of content that is direct to consumers on The Roku Channel.


Wood is building a content sphere, having purchased more than 75 shows from the failed service, Quibi, as well as other original content. Next year, the company is looking to spend $1 billion on content for The Roku Channel – moving towards Netflix’s $17 billion budget on content each year. 

 

Though the company is not quite there yet, The Roku Channel will soon have fresh content, a strategy akin to the biggest names in media (Netflix, Disney+, HBO Max.) Soon, Roku might be among those names. Still, despite its expansion into the content territory, Netflix doesn’t feel it’s a competitor, since one is a paid subscription service, and Roku is free and ad-funded. 

 

Either way, Roku needs to compete to win big. Can it go head to head with the big names out there? Right now forecasts say YES.