Last year, Comcast sales totaled $80 billion. DirecTV is estimated to be at least $32 billion. Paid TV is a huge established business, with healthy profit margins.
This little IPO poses the biggest threat to Comcast and DirecTV. In fact, this small company’s innovation could spark a massive disruption in the cable and satellite TV business.
That’s just one reason why Netflix invested millions in this company more than 10 years ago.
So, what is this company? The story starts in the 1990s, with one man who has been focused on changing the way we watch TV.
His name is David Wood. Back in 1997, he founded a company called ReplayTV. The company was the creator of the first digital video recorder or DVR.
The product was a hit. It was called Best of Show in its category at the Consumer Electronics Show (CES) in 1999.
Yet the company was out-marketed by TiVo. You may remember that Tivo went public in an IPO, wooed the press, and went on to become a household name.
After a legal battle over the “ad skipping” feature, ReplayTV was sold for $110 million. Eventually, the company’s intellectual property was acquired by DirecTV and integrated into that company’s DVRs.
The Netflix Connection
Soon after selling the company, Wood founded Roku (Roku is the Japanese word for the number six, and marked the sixth company he had started). Roku aimed to create a new hardware device to allow people to easily watch streaming video on the TV.
In 2007, Netflix streaming video was taking off. The company recognized Wood’s expertise in hardware, and hired him as the Vice President of Internet TV.
Netflix also invested a total of $5.7 million in Wood’s company – Roku – with the goal of creating a Netflix streaming video device.
Days before launching a Netflix-branded Roku streaming device, Netflix CEO Reed Hastings decided that he didn’t want to be in the hardware business. Hastings realized that if Netflix has its own hardware device, the company would be viewed as a threat by cable companies like Comcast and DirecTV, which have their own hardware devices.
Ultimately, Wood split ways with Netflix on good terms (I.E. There is still a “Netflix Button” on the Roku device).
Roku went on to raise a total of $208 million from VC firm Menlo Ventures and Rupert Murdoch’s News Corp (NASDAQ: NWSA). The latest round of financing values the company at just shy of $1 billion.
Roku sells a hardware device for under $100 that lets users easily stream video to their television. The company also generates revenues from advertising and subscription services on the Roku platform.
As of June 30th, the company had 15.1 million active accounts. That makes Roku the top streaming platform in the U.S.
The company’s business is large and growing. In the first half of 2017, Roku earned revenues of $199.7 million. That was a 23% increase from the first half of 2016.
Revenues from the hardware is essentially flat. Instead, Roku is focused on growing its “platform revenue” from advertising and subscription services. In the first half of this year, that recurring revenue stream was expanding by 91%.
Roku is currently losing money. In the first six months of 2017, the net loss was $24.2 million. The company’s adjusted EBITDA loss was $14 million.
Get Ready for Roku IPO in September
On Sept. 1, Roku’s S-1 filing with the S.E.C. was released to the public.
The company plans to raise up to $100 million in a public equity offering. Shares are expected to begin trading on the Nasdaq with the ticker symbol ROKU.
Roku has not yet scheduled an IPO. However, our research indicates that the stock could start trading before Sept. 30.
Unless you’ve got a big account at Morgan Stanley or Citigroup, it’s very unlikely that you’ll be able to get shares allocated in the initial public offering.
If you wait for shares to begin trading, you may end up paying a 20% or 30% premium to the IPO offering price.
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