Media streaming startup Roku gave viewers a show Thursday when it popped nearly 70 percent -- a 2017 record -- in its public market debut, injecting confidence into an IPO market disappointed by two recent high-profile flops.
Shares of Los Gatos-based Roku, a pioneer in the cord-cutting movement to wean viewers from subscription cable, were trading at $23.50 when the market closed Thursday. That was up 68 percent from the $14 price the company set in its initial public offering the day before.
It was the biggest first-day bump from a U.S.-based company this year, according to Renaissance Capital, which manages IPO-focused exchange-traded funds.
That’s good news for analysts and investors who had hoped to see a flood of tech IPOs this year but so far have witnessed a trickle. Adding to the gloom, two of 2017’s most anticipated tech offerings -- Snapchat parent Snap and meal kit delivery company Blue Apron -- plunged after lackluster earnings reports.
And then came Roku.
“People are dancing on rooftops in Silicon Valley over Roku,” said Los Angeles-based tech investor Eric Schiffer, CEO of private equity firm The Patriarch Organization. Roku has succeeded in making IPOs sexy again, he said.
Once the first-day buzz wears off, there's no guarantee Roku won't fizzle the way Venice-based Snap did, Schiffer said. After popping 44 percent in its much-anticipated public offering in March, Snap shares on Thursday were down 15 percent from their IPO price. But Roku, with its high-quality, well-established products, has a better chance of bouncing back from a downturn, Schiffer said.
New York-based meal kit delivery company Blue Apron was another much-hyped IPO that ended up letting down investors. The company's share price flatlined during its first day on the public market, and on Thursday was trading at barely more than half its IPO price.
Roku raised $219 million in its IPO late Wednesday, pricing 15.7 million shares at $14 -- the high end of the $12-$14 target range the company set last week. The company started trading at $15.76 when the market opened Thursday, and when trading ended, Roku had a market cap of $2.8 billion, according to Renaissance Capital.
"I'm heartened by the initial reaction on the stock," said Steve Louden, Roku's chief financial officer, "but I'm also very mindful that it's the first day, and it's really the beginning of a long journey as a public company."
Roku was an early champion in cord-cutting, where viewers stream their favorite TV shows online instead of paying for a traditional cable package. About 60 percent of adults ages 18 to 29 primarily stream their TV shows, according to a recent Pew Research Center study. And streaming service Hulu's "The Handmaid's Tale" cleaned up at the Emmy's earlier this month -- also making history by becoming the first streamed series to win the award for outstanding drama.
"We're looking forward to the future where all TV is going to be streamed, and Roku is going to be, and is, the leading platform for streaming TV," Roku founder and CEO Anthony Wood said before ringing the opening bell at the Nasdaq building in Times Square.
Wood, who invented DVR before founding Roku, shipped the first Roku product in 2008. The company originally focused on hardware, selling streaming enabled TVs and smaller streaming devices that connect to a TV set. Then the company launched its own streaming platform, which gives users access to providers such as Netflix, Hulu, Amazon Video and HBO, and gives Roku an additional revenue stream through ad sales and paid user subscriptions.
And that revenue stream is growing. About 80 percent of Roku's gross profit came from its platform in the first half of this year, Louden said, compared to a third in 2014.
Like many Silicon Valley tech companies entering the public market, Roku is not profitable. The startup generated a net loss of $24.2 million on revenue of $199.7 million during the first six months of the year, according to the company's filing with the Securities and Exchange Commission. Roku pulled in $398.6 million in revenue last year, up 25 percent from the year before.
Roku operates the number-one TV streaming platform in the U.S. as measured by total hours streamed, according to the company's filing. As of June 30, Roku had 15.1 million active accounts.
Even so, Roku faces plenty of competition from other big players in the media streaming space, including Amazon, Google and Apple.
Roku's IPO comes on the heels of a dismal year for Silicon Valley IPOs. Just 11 local companies went public in 2016, raising $1.2 billion -- less than half as many deals as the year before, and 70 percent less money raised, analytics firm Ipreo said in December. At the time, analysts expected the market to bounce back in 2017, and pointed to the growing number of massive private companies that eventually will need to go public to return money to their investors.
But experts say that hasn't happened, at least not in the tech sector. Prior to Roku's offering, 18 tech companies turned public this year, down from 21 at this time last year, according to Renaissance Capital. Companies like ride-hailing giant Uber, which has ballooned to a valuation of nearly $70 billion, are staying private longer.
But the companies that have priced recent IPOs mostly are doing well. The average return on IPOs priced this year is about 24 percent, Smith said.
The three other major Silicon Valley IPOs of the year -- San Francisco-based MuleSoft, Palo Alto-based Cloudera and San Francisco-based Okta -- all were trading above their IPO prices Thursday.
Now is the time to go public, Smith said.
"These returns are incredibly strong."
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