Essay Sample on Roku & Spotify: Digital Media Players & Content Monetization

Introduction

Roku, Inc. is an American corporation that is publicly traded and located in Los, Gatos, California. It is a producer of different digital medial players that enable users' accessibility to streamed video or audio services through the Internet via the television. They enable content publication to create and monetize significant audiences. Also, the company offers advertisers with important capabilities to reach their users. Spotify Technology S.A., on the other hand, is an international company that deals with the provision of media services. It is domiciled in Luxembourg, and its headquarters are located in Stockholm. The company majors in the provision of an audio streaming platform referred to as the "Spotify Platform." This aid in access of DRM-protected music and videos from various record labels and media organizations. The company offers both free and paid subscription services. Roku has its initial public offering (IPO) in 2017, while Spotify made it IPO in 2018. Roku is traded on NASDAQ while Spotify is traded on NYSE. This paper examines the prospectus of the two publicly traded companies' forms a potential investor's perspective. Also, there is an evaluation of the value created by the two firms post-IPO period and whether there good investments.

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Examining the Prospectus from a Potential Investor's Perspective

Roku Inc.

Roku made its IPO in September 2017 and hired seven underwriters. These include Morgan Stanley, Allen & Company LLC, Needham & Company, Oppenheimer & Co, CITIGROUP, RBC Capital Markets, and William Blair ("Roku Inc. Prospectus," 2017). After the initial public offering, the company offered $14 per share, with a registration fee of $11,590 ("Roku Inc. Prospectus," 2017). The decision to invest in Roku would be faced with various risks. For instance, there is stiff competition from competitors such as from Apple's T.V. streaming, and T.V. brands and service operators. It cannot also maximize its competitive edge with the T.V. makers. Roku cannot insert ads into videos in which its platforms streams. Another risk is that Roku is too reliant on its content providers and lacks proprietary content. Lastly, the company's financial statements are not as impressive as it reports negative earnings and EBITDA profits. Also, its free cash flows revolve around the breakeven point.

Roku intended to use the proceeds for their working capital. It is also used in general corporate operations, which entail sales and marketing operations, R&D operations, administrative activities, a refund of debts, capital expenses, and funding different business prospects ("Roku Inc. Prospectus," 2017). The company also sought to use some of the proceeds in the acquisition of appropriate businesses, products, and technologies.

Based on the provided financial information in the prospectus, Roku would not be a good investment. For instance, despite the increase in revenue for the year 2017, the enterprise recorded a negative net margin. The company has continuously realized slow growth and significant net loss. The company also has loans with increased interest rates (Cohan, 2017). An example of the high interest is illustrated in the prospectus as follows "the prime rate plus 3.5% or (2) LIBOR plus 6.5%, subject to a 1% LIBOR floor. Additionally, the borrowings incur payment in kind interest fees equal to 2.5% and final payment fees ranging from 1% to 4% of the borrowings." ("Roku Inc. Prospectus," 2017).

Roku decided to use NASDAQ to sell their shares because it is a company which is growth-oriented, and it is cost-effective because it offers substantially lower listing fees ("NYSE vs. NASDAQ" n.d.). The primary motivation for the company to become public was growth and therefore needed capital for working capital and various corporate purposes. After critical analysis of the prospectus, I would skeptical of investing in Roku due to high competition from big companies, unimpressive financial statements, and its high dependency on a few content providers.

Spotify

Spotify made its IPO in April 2018 through a direct listing, and therefore it did not have underwriters (Nickerson, 2018). This means it did not cost the company underwriter fees for the process. Investing in Spotify comes with various risks. First, the company is not currently making a profit and might not do so soon. For instance, it has lost significant operating losses since its inception ("Spotify Technology," 2018). Also, the costs exceed the company's revenues. Second, the company faces stiff competition from big companies such as Amazon Prime, Google Play Music, and Apple Music, among others.

It is noted in the prospectus that registered shareholders might decide to sell their ordinary shares or not. The company will not get any proceeds from the sales of ordinary shares covered in the prospectus. Based on the financial statements from the prospectus, investment in Spotify would not be the best decision ("Spotify Technology," 2018). This is because of the increased competition from established brands such as Amazon Prime, Google Play Music, and Apple Music, among others. Also, the company has been making losses, and revenue is less than the cost of operations.

Spotify preferred listing on NYSE because it offers a special market model, increased brand visibility, great market network, and core services ("NYSE vs. NASDAQ" n.d.). The company went public through the direct listing to promote transparency, enable access of information to potential shareholders, and to return capital to early investors. After careful examination of the prospectus, it would be hard to invest in the company due to increased competition and its unimpressive financial statements (Cohan, 2018).

Analysis of the Value Created in the Post-IPO Period

The computation of returns for the Roku and Spotify was done using the opening and closing price of shares and the total volume of shares sold, as shown in Yahoo Finance. For Roku, the first trading day reported $308 million, $398 million after one month, and $14 billion after six months, and $15 billion after one year in the post-IPO period. For Spotify, the first trading day reported $-516 million, $-656 million after one month, and $ 618 million after six months, and $-738 million after one year in the post-IPO period. After evaluations of these results, it is evident that Roku was a very good investment. Spotify, on the other hand, has registered mixed results with very low sales volumes.

References

Cohan, P. (2017). 4 Reasons to Bypass Roku's IPO. Retrieved February 29, 2020, from https://www.forbes.com/sites/petercohan/2017/09/05/4-reasons-to-bypass-rokus-ipo/#3c940cf12dd9

Cohan, P. (2018). 3 Reasons Not To Buy Spotify Stock. Retrieved February 29, 2020, from https://www.forbes.com/sites/petercohan/2018/04/04/3-reasons-not-to-buy-spotify-stock/#1b7341382ffc

Nickerson, B. J. (2018). 985The Underlying Underwriter: An Analysis of the Spotify Direct Listing. Retrieved February 29, 2020, from https://lawreview.uchicago.edu/sites/lawreview.uchicago.edu/files/Nickerson CMT Up_Down OUT (KT) (1).pdf

NYSE vs. NASDAQ. (n.d.). Retrieved February 29, 2020, from https://www.rhsmith.umd.edu/files/nasdaq-nyse.pdf

Roku Inc. Prospectus. (2017). Retrieved February 29, 2020, from https://www.sec.gov/Archives/edgar/data/1428439/000119312517275689/d403225ds1.htm#toc403225_5

Spotify Technology S.A Form 424B4. (2018). Retrieved February 29, 2020, from https://www.sec.gov/Archives/edgar/data/1428439/000119312517275689/d403225ds1.htm#toc403225_5