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Home>UPDATE: After booming IPO, Roku says streaming boxes aren't the future

UPDATE: After booming IPO, Roku says streaming boxes aren't the future

UPDATE: After booming IPO, Roku says streaming boxes aren't the future

09/29/2017

By Max A. Cherney

Company will look to advertising, content partnerships and licensing revenue for growth after stock zoomed 68% higher in debut

The company that started as a secret Netflix Inc. (NFLX) project to build hardware that could stream media to televisions no longer thinks those gadgets are the key to its Wall Street success.

Roku Inc. made its debut Thursday after raking in at least $219 million in an initial public offering that valued the company at roughly $1.3 billion, and shares zoomed nearly 68% higher than the $14 IPO price to close at $23.50. The blockbuster first-day performance suggests investors have taken to the company even after it failed to raise private capital at a $1.5 billion valuation (https://news.crunchbase.com/news/morning-report-rokus-ipo-spikes-pricing-top-range/) earlier this year.

Roku is largely known for its line of TV streaming sticks and devices, but executives say that the future lies in money generated from what people use the gadgets for: consuming content. Roku is staking its growth on its dedicated TV and streaming device operating system, described as "platform" revenue in company filings with the Securities and Exchange Commission that showed sales growth of 91% in the first six months of 2017 from the previous year.

"What's important in the evolution of the company is the platform business is becoming a greater and greater portion of Roku," Chief Financial Officer Steven Louden told MarketWatch in a telephone interview Thursday. "It's now 80% of our gross profit and I think it's great proof-point for investors about really what the Roku business model is about."

Don't miss: Roku IPO: Five things to know about the streaming-device company (http://www.marketwatch.com/story/roku-ipo-5-things-to-know-about-the-streaming-device-company-2017-09-05).

The company generates revenue from its streaming operating system in three ways: It sells ads, which make up about two-thirds of the current platform sales, and has revenue-sharing agreements for content and subscriptions purchased via its operating system, according to Louden. A final 5% comes from licensing the technology to others.

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