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Roku stock struggles post-IPO, adds broadcast TV to new OS

Roku swiftly followed up its successful IPO, going public at $14 a share with a valuation of $2 billion as of writing, with the launch of a new line of streaming devices and a revamped operating system, looking to further extend its lead ahead of Apple, Amazon and Google in the hardware streaming sector.

However, the hardware side of Roku’s business is shrinking, and this seems to have played on the minds of investors because stocks tumbled 27% in the week after the IPO – but this is more of a natural realignment of the inflated stock, rather than major cause for concern.

Right on trend, Roku’s new OS 8 talks up enhanced voice commands for users to launch streaming channels, switch inputs or control Roku TV. Roku says the update includes natural language understanding to search for movies, shows, actors and directors in “a more conventional tone.” It gives the example that users can now request suggestions based on voice commands such as “show me comedies with Will Ferrell” or “launch Hulu.”

Voice technology has come on leaps and bounds, as Faultline Online Reporter has covered in detail in the past few weeks, but Roku doesn’t seem to have launched anything revolutionary here. Granted, voice remotes and discovery software aren’t required to process requests anywhere near as complex as those Alexa is tasked with, but there is no reason why Roku can’t incorporate intelligent microphone technologies using far-field input processing, acoustic beamforming and enhanced noise cancellation. Perhaps it plans to rely on Alexa here and simply offer an API?

The standout feature of the new Roku hardware and version 8 OS is the addition of live over-the-air (OTA) TV signals into the new Smart Guide, via a separate antenna, as well as streaming options. The new EPG can pull up program info from one week in the past and two weeks in the future, including local broadcast channels in search results (manual and voice) alongside more than 500 streaming channels.

The Roku 4K Spotlight Channel has also undergone a makeover, with a new navigation menu designed to make discovery of 4K, HDR and Dolby Vision content easier – including more content categories and the ability to choose the same movie or TV program from multiple sources. OS 8 will begin rolling out this month and Roku expects all devices to have received the update by the end of this year.

Much skepticism has surrounded Roku’s recent closed IPO, primarily citing the 2% reduction in its hardware revenues in the first half of this year. Yet Roku is the market leader in streaming devices for good reason, with 15.1 million active accounts, and we see no reason why or how its nearest rival Apple TV will overtake it in the near future.

Apple only recently decided to open the door for competing services such as Amazon Instant Video to sit on Apple TV, while Roku has provided an open ecosystem from the start, now with even more added value with access to broadcast TV channels. Oh and Roku is much cheaper at between $50 to $80, compared to the $149 minimum for an Apple TV device. Chromecast is another matter, cheap enough, but not so fully featured.

“Roku OS 8 delivers on our key pillars of ease, content and value. These new features make the entertainment experience more enjoyable for our customers, while solving some of the biggest pain points when watching TV today,” said Ilya Asnis, SVP of Roku OS.

While device sales are key to getting consumers on board the Roku ecosystem, Roku is also embracing the transition to software and services. Its Platform operating segment accounts for around 33% of its total business, with the rest made up by Player revenues. However, Platform yields a superior margin, accounting for 74% of the company’s profit in the past year.

Getting a slice of subscription revenues from Roku users who sign up to services including Netflix and Hulu is another arm of the Roku business, as well as revenues from advertising, with 43% of hours streamed on Roku in the first half of this year being ad-supported.

An important factor which has been overlooked by Roku-bashers following the IPO is that its devices are often one of the first ports of call when a streaming service launches. Roku boxes will be the first TV-connected device to make Comcast’s new Xfinity Instant TV available, and it also has a major deal with Sky in Europe, which is shipping Roku streaming devices for its Now TV offerings in the UK, Ireland, Germany and Spain.

Roku’s progress in smart TVs also seems to have been forgotten, with its smart TV app providing a popular source of aggregating content without additional hardware requirements. Chinese TV set manufacturer TCL recently cited its partnership with Roku, which it formed in 2014, as one of the key contributors to its growth – up 72% in the past year to move into the top five manufacturers in unit sales, according to data from market research firm NPD Group. TCL offers Roku’s smart TV platform on its hardware providing more than 5,000 live channels and 500,000 movies and series.

Roku says users streamed nearly 7 billion hours on the Roku platform in the first half of this year, a jump of 61% over the same period in 2016. If that figure alone isn’t enough to silence the doubters, then who knows what will.

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