Roku’s platform revenue has grown rapidly over the past few years but one analyst expects half of that equation to come under pressure as the streaming wars slow down.
In a new research note, MoffettNathanson analyst Michael Nathanson estimates that during the second quarter, approximately half of Roku’s platform revenue came from advertising and the other half came from “other platform revenue.” That includes revenue sharing agreements with streaming services available on the Roku platform and “performance obligations” that Roku describes as unspecified software upgrades embedded in the hardware that are initially recorded as deferred revenue.
Starting with the Disney+ launch in November 2019, Roku has reached a steady stream of distribution agreements with new services including Peacock, AMC+, HBO Max, Discovery+ and Paramount+.
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“Putting this all together, the once in a lifetime explosion of streaming launches has proved to be a greater boon than we would have expected to Roku’s business,” wrote Nathanson, who added that the rush of new SVODs has push Roku’s expected revenue recognition from performance obligations over the next 12 months from $87 million to $437 million, a 5x lift over the past six quarters.
But given how Netflix, YouTube, Disney’s Hulu and Disney+, and Amazon Prime control over 70% of all streaming usage and leave about 25% for every other service, according to Nielsen data, MoffettNathanson expects more streaming industry consolidation besides the upcoming merger between HBO Max and Discovery. Specifically, Nathanson points out Showtime, AMC+, Starz, Peacock and Paramount+ as the prime suspects for consolidating to grab a larger slice of the streaming usage market.
“In summary, we do not question the future growth rate of Roku’s video advertising business, which generates an estimated 50% of Roku platform revenues and should benefit from the shift in linear TV budgets to AVOD and CTV,” he wrote. “However, we do worry that the recent acceleration in Roku’s revenues from distribution of an emerging class of SVOD platforms will face increasing headwinds as launch activity slows, new deals are reached and the losers in this new war quickly assess their raison d’etre and seek consolidation.”