What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing before we jump into today's video. I want to thank the daily upside for partnering with the channel. The daily upside is a free business and finance newsletter that i actually use every morning to help get an edge on the latest business news check out. The link in my bio to subscribe for free the pandemic of 2020 and 2021 resulted in some major changes to the economy and stock markets, which very few people could have anticipated.

While some companies were driven to bankruptcy. Technology companies which benefited from remote work and consumption saw an unprecedented windfall, but now economies are reopening and things are reverting back to the mean this has led to the so-called pandemic round trip. Coveted beneficiaries saw their share prices skyrocket in 2020, but gave up almost all of those gains in 2021.. This is perhaps one of the most rapid cycles of value creation and destruction that we've seen since the dot-com bubble of 1999., and recently, we've been seeing these companies dropping like flies.

Peloton is down 80 from its highs, after increasing more than fivefold, zoom increased 700. Just to fall by 80 and there are countless other examples. The most recent shooter drop has been the streaming technology company roku. This past friday, roku reported a revenue miss for the fourth quarter of 2021, as well as disappointing guidance for the first quarter 2022.

This immediately sent the stock tanking 22 percent. It has now given up more than all of its pandemic gains with the stock, currently sitting 13 below its february 2021 levels, despite having more than tripled at its peak in this video, we'll look at why roku did so. Well, during kovid why their share prices crashing now and whether they'll be able to make a turnaround, but before we go any further, i want to thank the daily upside for partnering with us on this video as a content creator, i'm always trying to keep up to Date with recent events in the stock market and economy, you can spend hours browsing through google and reddit reading about the stock market. The problem is, the vast majority of finance articles are generated by ai or biased career journalists.

That's why. Every morning i read the daily upside founded by a former investment banker who spent a decade on wall street. The daily upside provides actionable insights and clarity on the stories shaping the business world. Every weekday they deliver a morning brief, followed by detailed stories instead of using clickbait headlines and biased coverage like most of us, are all well too familiar with they cut through the noise and only give you the most relevant information.

They had a great piece a few days ago talking about how the special effects company behind the james bond and matrix movies, is going public via spac. That company is attempting to capitalize off of growing demand for movie production from streaming platforms like netflix and disney plus. It's about a five minute, read that isn't afraid to dive into the hot topics and give real high level unbiased analysis with the occasional dose of wit, to keep things interesting. As someone who looks to stay on top of news to help create videos like this one, i can't recommend them enough click, the link in my bio and join the 200 000 other people that read the daily upside every morning and the best part is it's absolutely Free roku was founded in 2008 by a former netflix executive.

Anthony wood netflix provide the initial seed funding for roku to help them develop streaming hardware to make it easier for consumers to watch netflix before the days of smart tvs. You'd have to plug in your laptop with an hdmi cable, which would be inconvenient roku create a streaming stick which you can plug into your tv to stream services like netflix or hulu. You can just leave the device plugged into your tv all the time making for a much more seamless streaming experience. They also license their software to television manufacturers like hisense to create smart tvs.

Today, one in three smart tvs sold in the us run the roku operating system. Over the past 10 years, streaming, services like netflix, have grown exponentially as they took share from traditional cable tv. This put roku in the enviable position of benefiting from the growth of streaming, while not having to spend billions on original content if they're not creating their own content. How does roku make money they sell? Their streaming sticks as well as their smart tvs as a one-time sale, but that's only a small part of their business, and you can almost think of it as a loss leader.

In addition to creating the streaming hardware. Roku also develops a software when you log onto your tv, it takes you to the roku homepage and through this home page, you can access all the various streaming providers that they partner with roku acts as a paid promoter of netflix and other streaming services. If you own a roku, stick, you might notice up to four buttons for various streaming services. Those aren't there by accident, the streaming providers pay roku, roughly one dollar per button per device sold as it helps them gain more subscribers.

But the real money comes from advertising, with tens of millions of consumers watching on a roku device every day they have an incredibly powerful platform for advertisements. They charge about 1 million dollars per day to host an ad on their home page streaming. Services such as disney plus purchased this to promote their new movies and acquire new subscribers. For example, shortly after nbc launched their peacock streaming service, they paid roku to place a clickable button to watch the office on their home screen.

All the other major streaming services are competing fiercely with each other to gain market share. Roku can sit back and collect advertising revenue from all of them, and they don't even really care who wins in the end. While this could be a very high margin, business there's a limit to how much they can grow as a platform as their advertising inventory is limited to just the roku homepage. If they want to grow further, they would have to put their foot in the ring and start creating some of their own content.

To this end, roku launched the roku channel in 2017.. The roku channel is a free ad-supported offering which allows roku customers to watch content. Licensed from traditional media companies, as more and more consumers were cutting the court on their expensive cable tv plans, the traditional media companies are seeing their revenue evaporate by licensing some of their content to roku. They don't make money from monthly cable fees, but they can at least make a little bit of money from advertising, which is better than nothing roku places ads within shows on the roku channel and shares the revenue with the media company such as lionsgate mgm and warner Media who create the content in this way roku gets the best of both worlds.

They massively expand their ad inventory beyond just the home page without having to spend the billions of dollars it takes to create the original content, as their user base increases, their ability to generate advertising revenue increases commensurately. They benefited tremendously from the pandemic, as people were forced to stay inside and spent more time streaming videos, but even before pre-coded they were growing at a tremendous pace. Between 2016 and 2021, their number of active accounts increased five-fold from 13 million to 60 million. Their total number of streaming hours increased, almost eightfold from nine billion to 73 billion, as all the streaming services increased, the breadth and quality of their original content.

The average daily viewing hours per roku user increased from less than two hours in 2016 to almost three and a half hours in 2021, as the viewers became more engaged and roku refined their advertising platform, their average revenue per user increased from eight dollars in 2016 to 41 dollars in 2021, the combination of growing active users and increased monetization caused their revenue to explode over the past five years. In 2021, they generated 2.7 billion dollars in revenue, which is a seven-fold increase from 2016.. They also made 242 million dollars of net profit, which marked their first full year of profitability as a public company. Naturally, roku was one of the best performing stocks of the pandemic.

It reached a high of 467 dollars per share in february 2021, which is when most of the disruptive technology stocks peaked. At this point it had a market cap of 60 billion dollars or more than 30 times its trailing 12 months revenue. That's a rich valuation. By almost any standard, their revenue grew by 57 in 2020, and investors were probably extrapolating this growth rate to many years into the future.

As a disruptive technology bubble, deflated throughout 2021 roku came down with it, but things really got ugly when they reported their fourth quarter. Earnings on february 17th, their reported revenue of 865 million dollars was within a few percentage points of consensus expectations, but their 2022 guidance was a major disappointment and sent the share price free falling more than 20 percent. They say that they expect revenue to grow by 35. In 2022, which is a deceleration from the 55 growth they experienced in 2021, this shouldn't come as too much of a surprise when you're growing at 50 plus per year, you're, obviously going to run into a lot of large numbers eventually and growth will slow down on A percentage basis, the 35 target implies their revenue will grow by 968 million dollars in 2022, which is almost exactly the same as the 987 million dollars.

They grew in 2021. The percentage is just smaller because they are now growing off a larger base. Additionally, roku says they'll be negatively impacted by supply chain issues which will decrease availability of their smart tvs. Hopefully this will be a temporary issue and their growth could even accelerate once this is resolved, but the longer term fear is competition.

The technology behind the roku streaming. Stick and smart tv operating system aren't exactly rocket science. Tech giants, including amazon, apple and google, all have competing products with very similar functionalities. Over the past few years, amazon's fire tv stick has been gaining significant market share, but this has mostly come at the expense of google's chromecast as well as miscellaneous.

Other players. Roku's market share has stayed relatively constant at roughly 35 percent. Roku claims that their operating system is better than their competitors because they built it from scratch to be specifically for tvs. A lot of the established tech companies adapted their existing mobile operating systems to go on a tv which makes them more prone to bugs.

And there might be some truth to this: google developed smart tv software to compete with roku and licensed it to the tv manufacturer tcl. Unfortunately, the google software was so bad and buggy that best buy quickly discontinued the product as they didn't want to be associated with the negative reviews. So building a tv operating system is harder than it looks with that being said, it looks like amazon will be a significant competitor. Their technology works pretty well and they've been steadily gaining market share.

Also, they have tremendous synergies being able to promote their fire products on their e-commerce platform. Roku founder and ceo, anthony wood says that he doesn't lose sleep at night over competition from amazon or any of the other tech giants. He points out that today, 45 of tv viewership is through streaming, but only 18 of ad dollars are spent on streaming as advertisers shift their budgets from traditional tv to streaming. He thinks there is plenty of growth to go around for everyone.

While this may be true, it does appear that roku is taking some defensive actions to defend its competitive position. They recently started investing in their own original content for the roku channel in an effort to differentiate themselves. Currently, the breadth and quality of their content is nowhere near that netflix or disney plus, and they offer it for free on the roku channel. The problem with creating content is that it's extremely expensive.

Last year they spent an estimated 100 million dollars to acquire the content. Library of the failed streaming startup, quivi and rebranded them as roku originals, and this is not exactly the highest quality content. It's unlikely that they'll invest the billions of dollars necessary to launch a paid streaming service and will just be an added bonus of free content to attract more users and show more ads. In hindsight, roku was obscenely overvalued at its peak of almost 500 dollars per share, but it's not over for them.

Yet, despite the threat of increasing competition, they're still the leading streaming technology, company and smart tv company in the us and their revenue is still growing by more than 30 percent. Alright guys that wraps it up for this video. What do you think about roku? Is the recent share price decline justified? Let us know in the comments section below also make sure to check out the daily upside link in my description below, as always. Thank you so much for watching and we'll see in the next one wall, street millennial signing out.