Shares of Roku, Inc. (NASDAQ:$ROKU) soared 67.86% in its first day of trading on Thursday, September 28.
Roku priced its IPO at $14 per share but finished the trading day on Thursday at $23.50 per share.
Let’s look at two reasons why Roku’s IPO did so well:
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Growth Potential
Even though investors thought of the company as a play on low-margin consumer hardware going into its IPO, the company is actually a play on higher-margin services revenue. Roku has a tremendous amount of potential in monetizing its users that have already bought its hardware.
Plus, Roku had yet to realize the full extent of its potential in monetizing said base. Roku devices made up 37% of all U.S. streaming media players as of quarter one of 2017.
While it’s not yet profitable, the company is definitely on the right track to getting there. CFO Steve Louden said they plan on doing so by a combination of selling ads on its platform and attracting more overall users.
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Ad Sales
Revenue growth for the company came from a 91% increase in the company’s higher-margin “Platform” revenue. That business covers the following: software licensing, ad sales, and branded channel buttons on the company’s remotes.
Along with ad sales, video ad sales could play a defining role in the company’s progress, and it could prove highly profitable for the tech company.
Featured Image: depositphotos/OtnaYdur
