Roku (ROKU) is a stock that many have considered grossly overvalued. Today shares are getting smacked hard following a less than enthusiastic earnings report. In this column we discuss the key metrics that you need to be aware of, as well as our take on the stock considering the amount of shares insiders and private equity firms owe.

Total net revenue and gross profit

2017 was a milestone year on many fronts with net revenue growth accelerating to 29% year-over-year, up from 25% in 2016, to
$513 million. Importantly, platform revenues were up 115% year-over-year to a record $225 million helping accelerate gross profit
growth, up 65% to $200 million, and deliver nearly 9 percentage points of gross margin expansion to 39% as a percentage of

In Q4 2017, total net revenue increased 28% year-over-year to $188.3 million. Q4 2017 gross profit grew materially faster than
revenues, up 64% year-over-year to $73.5 million driven by an increasing mix of higher-margin platform revenue which represented
87% of total gross profit in the fourth quarter of 2017, up from 65% in fourth quarter of 2016. This was a key driver of gross margin
expansion of 9 percentage points to 39% in the fourth quarter of 2017.

Active Accounts up 44% YoY to 19.3 million

As of December 31, 2017, active accounts totaled 19.3 million, up 44% year-over-year. Importantly, for the second quarter in a row
more than half of new accounts in the quarter came from licensed sources with the largest and fastest-growing portion coming from
Roku TVs.

Streaming hours up 59% YoY to 14.8 billion

Consumers win with TV streaming – they get more content, a better user experience, and more control over what they spend for
content. In 2017, Roku users streamed 14.8 billion hours, up 59% year-over-year. Q4 2017 streaming hours increased 55% year-overyear
to 4.3 billion hours. We continue to see increasing engagement on the platform which is a key driver of monetization.
ARPU up 48% YoY to $13.78

Trailing twelve-month ARPU in the fourth quarter was a record $13.78, up 48% year-over-year. ARPU has more than doubled in the
last two years as our platform monetization efforts, primarily advertising, continue to take hold. The majority of our advertising
revenue comes from video ads we serve on ad-supported channels, but we continue to see very strong audience development and
brand sponsorship ad growth as well.

The major issue we have hear is that much of the growth has been baked in and the stock appears to be a short target, if you can acquire shares. This is mostly because of all of the insider shares held. If you are long shares of ROKU do you feel good about the fact that insiders and private equity own more than 84 million Series B shares with a cost basis of $2.55? This is clearly spelled out in the S-1, and ROKU’s Q3 2017 10-Q.

So, there is no question the company is growing, but its dangerous. Putting it all together, we are look at a highly valued business, with question barriers to entry and that has super low cost basis Series B shares and options waiting in the wings to, eventually, be sold. We are not buyers here.


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