Despite stock fall, Roku goes ahead with plan to make TVs

SAN JOSE, Calif. — During the pandemic, Roku reaped the benefits of the streaming boom, as consumers used its platform to stream movies and TV shows from services like Netflix and Disney+.

The San Jose-based company sold lots of ads on its platform and took in significant revenue from new streaming services seeking to connect with Roku’s more than 65 million users. Roku also began investing in new original programs from its ad-supported streaming service, the Roku Channel, doubling its staff in Santa Monica in 2021.

But over the past year, some investors have grown wary of Roku’s direction, as the company weathers a weaker advertising market and delves into non-TV-related products like video doorbells. Amid a broader rethinking of the streaming business model, Roku’s stock price plunged more than 80% in 2022.

In the face of these headwinds, the company is branching out. Last week, Roku announced it would make and design its own branded TVs. The 11 models, which will sell in the U.S. in the spring, will range from 24 to 75 inches for $119 to $999.

“We believe that a TV made and designed by Roku, just makes sense,” said Chris Larson, vice president of retail strategy, in a December news briefing at Roku’s headquarters in California.

The move will help Roku build and maintain its presence in smart TVs, as other companies including

Google and Samsung are distributing their own rival software, said Paul Gray, research director, consumer electronics for Londonbased Omdia.

“The TV and video market is turning into a battle of platforms,” Gray said. “As a result, Roku needs to continue to nurture its installed base.”

Whether the TV push will help regain investor confidence in Roku remains to be seen.

Roku had projected its fourth-quarter sales would be lower than a year ago in part because of the weaker advertising market. In November, the company announced it would cut 200 U.S. jobs, about 7% of its workforce. Roku makes money through sales of its hardware, licensing of its software, advertising and commissions.

“Our view is that Roku is indeed Broku as a stock (and it remains to be seen if it is Broku as a company amidst all of these hurdles),” wrote Jeffrey Wlodarczak, a principal and analyst at Pivotal Research Group in a Nov. 3 note. He has a sell rating on the stock.

Roku, founded in 2002, is seen as one of the pioneers of streaming, offering the first connected TV device to stream Netflix, and continues to sell devices that plug into TVs so consumers can access streaming services.

In 2014, Roku expanded its reach by partnering with TV manufacturers to sell Roku’s software already installed on smart TVs and will continue to do so.

Selling its own TVs is a natural progression for the company, executives said.

“This move could fully realize the full potential of our Roku TV program by bringing our content, our award-winning operating system, and hardware all together under one roof, so making our own branded TVs is that natural next step in our company’s evolution,” Larson said.

Roku is the No. 1 streaming operating system in the U.S., with a 33% market share, executives said.

But rivals are not far off, according to data from research firm Omdia. In the third quarter, Roku had a 26.5% share of operating systems in North America, while Samsung’s Tizen had a 27.4% share and Google’s Android had 13.3%, according to Omdia data.

Roku is following a path similar to other tech companies such as Google, which had supplied operating software to other manufacturers before making its own branded Google Pixel phones in 2016.

The company has acknowledged that a looming recession could affect its business. Roku forecast that its fourth-quarter revenue would be $800 million, down from $865.3 million in the fourth quarter of 2021, in part due to weakness in the advertising market. It projected a net loss of $245 million in the quarter, versus a profit of $23.7 million from the same period a year ago.

The 11 models, which will sell in the U.S. in the spring, will range from 24 to 75 inches for $119 to $999.