Roku Inc (NASDAQ:ROKU) reported its first quarterly earnings since its September IPO. After posting a much narrower-than-expected loss, higher-than-expected Roku revenue and notching a 48% year-over-year increase in active accounts, ROKU stock was up a whopping 55%.
On the same day as its Q3 earnings hit, it was reported that Roku had quietly acquired a Danish company specializing in multi-room audio. All signs now point to a Roku smart speaker to join its stable of set-top video streamers.
Report: Roku Bought Dynastrom
Yesterday, Variety reported that it appears Roku bought Danish multi-room audio startup Dynastrom for $3.5 million in September. This is based on a regulatory filing made by Roku on Thursday. The filing doesn’t specifically name Dynastrom, but references a company based in Denmark. In addition, multiple key Dynastrom employees — including its CEO and CTO — changed their LinkedIn profiles to indicate they had joined Roku in September.
So that seems pretty conclusive.
Adding fuel to the fire, during the Q3 earnings call, Roku’s CEO told investors: “We are investing significantly into a massive opportunity.”
Dynastrom Technology Points to a Roku Smart Speaker
Dynastrom specializes in multi-room streaming audio for speakers. With the acquisition, Roku gains the technology needed to power multi-room audio. It had been reported earlier, that the Roku is also working on far-field microphones and had created a “center of audio excellence.”
Put it all together and the signs point to a Roku smart speaker.
It would enter an increasingly competitive environment, started by Amazon.com Inc.’s (NASDAQ:AMZN) Amazon Echo, but now including Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Home, Microsoft Corporation’s (NASDAQ:MSFT) Invoke and a growing collection of third party smart speakers. The competition gets even tougher in December, when Apple Inc.’s (NASDAQ:AAPL) HomePod smart speaker launches.
This begs the question: why enter such a crowded market, and one that’s dominated by tech giants that dwarf Roku? The answer may be found in the earnings report, where Roku points out that the company is focused on growing unit sales and active accounts rather than maximizing its hardware revenue.
In other words, the strategy is for Roku revenue and ROKU stock value to be based on growing the number of users and monetizing those users, rather than profiting from selling hardware.
The Smart Speaker Market Is Getting Crowded
In 2016, the smart speaker market was worth $400 million. Not small potatoes, but not huge. However, it’s predicted to explode with a CAGR of over 50% between 2017 and 2024. Amazon still commands nearly 70% of smart speaker sales in the U.S., but as it loses its first-to-market advantage, other companies are making headway.
And that’s where Roku has an opportunity.
The company has grabbed a leading share among video streamers in the U.S. in large part because of price. A new Apple TV streamer starts at $179. Even Amazon — famous for selling its hardware at cost or even a loss — charges $39 for a Fire TV stick. But Roku offers video streamers staring at $29.
If the company combines that willingness to forgo profit on hardware sales when it releases its Roku smart speaker, the opportunity is there to ride the wave of mass consumer adoption and sell a ton of Rokus to consumers who don’t want to shell out $349 for an Apple HomePod or even $49 for a Google Home Mini.
Also on tap could be licensing. Roku revenue from licensing its streaming technology to TV manufacturers — who incorporate it as a built-in feature on their sets — is on the rise. Roku could sell its Roku smart speaker technology to other companies to incorporate within their own wireless speakers.
More sales (direct or through licensing the platform) mean more active accounts. And Roku is building on monetizing its user base. Talking to CNBC, the company noted that it now makes $12.68 per user in advertising revenue — up 37% year-over-year. Expanding into the latest consumer tech trend with a Roku smart speaker gives the company room to grow its user base beyond video streamers, boosting that user revenue and helping to keep the ROKU stock momentum going.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
