(ROKU) Archives

Get Ready for Another Bite of the Apple

The biggest news of Apple’s earnings results was what Apple decided they will not do in the future – stop publishing iPhone unit sales.

I applaud CEO of Apple Tim Cook for putting this to rest because it is starting to get out of hand. The outbreak of criticism and grief targeted at Cook has to stop because analysts do not understand.

On one hand, it’s important to be aware of the metrics tech companies are judged on, but if analysts aren’t in tune to what these numbers mean in the bigger scheme of things, then it is irrelevant.

Apple is doing everything it can to turn into a software company. They are not interested in battling it out at the low-end of the totem pole because that path is a scrap down to zero margins.

Migrating up the value chain is something that management has identified, and this strategic shift should be met with rapturous celebrations.

Unit sales growth, gross payment value, and monthly views are all metrics that growth companies hold dear to their heart and a way to show to investors they are worth investing in regardless of the cash burn and cringeworthy operating margins.

Apple is way past that point if you haven’t noticed and should be focusing on how to monetize the existing base of customers.

Plain and simple, Apple is not a start-up growth company and taking away this reporting metric will help investors refocus on the real story at hand which is its core of software and services.

With software and services, profitability by way of innovative software offerings will be magnified and highlighted as the roadmap ahead.

As for the last batch ever of iPhone data, Apple has done a brilliant job, to say the least. They exceeded all expectations by smashing the average selling price (ASP) of iPhones at $793.

This is a monumental jump from $618 at the same time last year, a 28% YOY increase.

I did not say that Apple is the world’s best tech company at the Mad Hedge Lake Tahoe Conference, but I did say Apple is by far the highest quality company and this earnings report is a great example of that.

EPS routinely is beat and raised on a sequential basis.

Doubling down on the theme of quality is the revenue numbers from Japan which were up 34% YOY for a group of people who have the harshest view of quality control in the world.

Believe me, Japanese consumers have no desire to ever buy a Chinese smartphone.

The spike in ASPs was triggered by a flight to its collection of ultra-premium smartphones that has enthralled consumers. The ballooning ASP prices led iPhone revenue to spike 29% YOY to over $37 billion crushing the almost $30 million in quarterly revenue the prior year.

According to data from Hyla Mobile Inc., American iPhones traded in between July 1 and the end of September were 2.92 years old on average, up from 2.37 years old the same period two years earlier.

The reasons are two-fold.

Companies are producing better performing smartphones negating the need to impatiently upgrade right away.

The second reason is that they are just plain out pricey, and not everybody will have the dough to splurge on a new iPhone every year or two.

Thus, Apple has strategically placed itself in the correct manner by producing the best smartphone that customers will eventually adopt but carving out as much revenue while consumers are using their phones longer.

During this time, data usage has exploded as consumers are addicted to their smartphones and relying on a whole host of apps to complete their daily lives.

Apple would be stupid to not position themselves to capture this tectonic shift to more hourly data usage and breaking itself from the reliance of smart device revenue itself.

This is what other tech companies are doing like Roku, albeit at an earlier stage in their growth cycle.

In the future, smartphones will become obsolete replaced by something smaller, nimbler, and perhaps integrated with our brain or body or both.

Apple is also acutely aware that the bombardment of Chinese smartphones and the upward trend in the overall quality of these phones has siphoned off part of the iPhone market in specific segments of the world.

Thus, Apple has barely even touched the emerging markets of India that has been flooded by Chinese mid-tier phones without the branding power of Apple.

Apple doesn’t create these trends, they are merely stitching together smart decisions based upon them.

The next step is also a two-pronged proposition.

Apple needs a full-blown enterprise service based upon the cloud.

They can either buy one and they certainly have the cash to do so. Or they can develop one internally from scratch.

The second issue is that Apple also needs to widen its product service offerings that not only include an enterprise cloud option but also entertainment, news, sports, and everything else that could hook user’s attention and stick them to the iOS operating system until death.

Cementing users to the iOS operating system is the overall goal of all of this software infusion because if users start migrating over to the Android platform, it’s real game, set, and match for Apple as we know it.

Instead of myopic analysts focusing on “unit sales”, smart analysts should be focusing on whether what Apple is doing will tie future users to iOS or not.

I am happy with what I have seen so far but there can be a great deal of improvement going forward.

I think my 2-year-old nephew even knows that iPhone sales are maturing by now. This has not been a new story and I would call it poor reporting from a group of lazy-minded analysts.

It’s true that Apple rode the coattails of its miracle hardware products to a $1 trillion market cap. It was a magnificent achievement. I pat all who were involved on the back.

However, it’s clear as daylight that hardware is not what is going to propel Apple to a $2 trillion market cap.

Lost in all the smoke and mirrors is that revenue was up 20% YOY which is a staggering feat for a $1 trillion company.

Even more muddied in the rhetoric is that there has been minimal slowdown in China even after all the trade war jostling which is a miracle in its own right growing 16% YOY.

Software and services were up 27% YOY pulling in $10 billion and the Apple ecosystem has now reached 330 million paid subscribers, a growth of 50% YOY.

Paid subscribers are the most important metric to Apple now as it shows how many users are percolating inside their eco-system wielding their credit card around for software and services whether its maintenance spend or Apple pay.

Apple pay transaction volume tripled in the past year with four times the growth rate of FinTech player PayPal (PYPL).

Wearables still maintain broad-based growth climbing 50% YOY which is slightly down from the 60% YOY last quarter.

All of the wearables such as the amazing Apple Watch, AirPods, and Beats products have a nice supplemental effect to the Apple eco-system and is an over $10 billion business per year.

I am interested to see if Apple can make the quick pivot to an enterprise software company, and Apple’s announcement of Apple business manager, a method to deploy iOS devices at scale, had an initial sign up of 40,000 companies. Apple needs to bet the ranch on this direction and do it fast.

I would like to see Apple attack the enterprise market with zeal because there is a long runway for them to scale and the bulk of companies would welcome Apple products and services littered around their mobile offices.

The most important soundbite was by CFO of Apple Luca Maestri saying, “Given the increasing importance of our services business and in order to provide additional transparency to our financial results, we will start reporting revenue and total services beginning this December quarter.”

There you go…Apple explicitly saying they are the newest software company on the block that should go alongside the likes of Microsoft (MSFT).

The software theme will continue with the Mad Hedge Tech Letter because there are some real gems out there in the software landscape tied to the cloud.

As for Apple, the earnings report reaffirms my opinion that they just keep getting better and are magicians at adjusting to the current tech climate.

Wait for the stock to find some footing then it’s a definite buy, and for long-term holders, it’s a screaming buy.

October 22, 2018

Diary, Newsletter, Summary

Global Market Comments
October 22, 2018
Fiat Lux

Featured Trade:

(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or HEADING FOR LAKE TAHOE),
(SPY), (TLT), (VIX), (MSFT), (AMZN), (CRM), (ROKU),
(BRING BACK THE UPTICK RULE!)

The Market Outlook for the Week Ahead, or Heading for Lake Tahoe

Diary, Newsletter

There’s nothing like a quickie five-day tour of the Southeast to give one an instant snapshot of the US economy. The economy is definitely overheating and could blow up sometime in 2019 or 2020.

Traffic everywhere is horrendous as drivers struggle to cope with a road system built to handle half the current US population. Service has gotten terrible as workers vacate the lower paid sectors of the economy. Everyone you talk to tells you business is great, from the CEOs down to the Uber drivers.

I managed to miss Hurricane Michael by two days. Hartsfield Jackson Atlanta International Airport was busy with exhausted transiting Red Cross workers. The Interstate from Savanna to Atlanta, Georgia was lined with thousands of downed trees. In Houston mountains of debris were evident everywhere, the rotting, soggy remnants of last year’s Hurricane Harvey.

I managed to score all day parking in downtown Atlanta for only $8. I kept the receipt to show my disbelieving friends at home.

Bull markets climb a wall of worry and this one has been no exception. However, the higher we get the greater the demands on the faithful.

Last week saw my Mad Hedge Market Timing Index plunge to an all-time low reading of 4. I back-tested the data and was stunned to discover that October saw the steepest selloff since the 1987 crash, which saw the average crater 21% in one day.

And while evidence of a coming bear market is everywhere, the reality is that stocks can keep rising for another year. Market bottoms are easy to quantify based on traditional valuation measure, but tops are notoriously difficult to call. Look for one more high volume melt up like we saw in January and that should be it.

Real interest rates are still zero (3.2% bond yields – 3.2% inflation), so there is no way this is any more than a short-term correction in a bull market.

The world is still awash in liquidity

The Fed says they’re still raising rates four times in a year no matter what the president says. Look for a 3.25% overnight rate in a year, and 4% for three months funds. If inflation rises to 4% at the same time, real rates will still be at zero.

There certainly has not been a shortage of things to worry about on the geopolitical front. After Saudi Arabia was caught red-handed with video and audio proof of torturing and killing a Washington Post reporter, it threatened to cut off our oil supply and dump their substantial holding of technology stocks.

Tesla made another move towards the mass market by accelerating its release of the $35,000 Tesla 3. Production is now well over 6,000 units a month.

If you had any doubts that housing was now in recession, look no further than the September Existing Home Sales which were down a disastrous 3.5%. In the meantime, the auto industry continues to plumb new depths. In some industries, the recession has already started.

We have been killing it on the trading front. My 2018 year-to-date performance has bounced back to a robust 29.07%, and my trailing one-year return stands at 35.37%. October is up +0.68%, despite a gut-punching, nearly instant NASDAQ swoon of 10.50%. Most people will take that in these horrific conditions.

My single stock positions have been money makers, but my short volatility position (VXX), which I put on early, refuses to go down, eating up much of my profits.

My nine-year return appreciated to 305.54%. The average annualized return stands at 34.58%. Global Trading Dispatch is now only 44 basis points from an all-time high.

The Mad Hedge Technology Letter has done even better, blasting through to a new all-time high at an annualized 26.67%. It almost completely missed the tech meltdown and then went aggressively long our favorite names right at the market bottom.

I’d like to think my 50 years of trading experience is finally paying off, or maybe I’m just lucky. Who knows?

This coming week will be pretty sedentary on the data front, with the Friday Q3 GDP print the big kahuna. Individual company earnings reports will be the main market driver.

Monday, October 22 at 8:30 AM, the Chicago Fed National Activity Index is out. 3M (MMM), and Logitech (LOGI) report.

On Tuesday, October 23 at 10:00 AM, the Richmond Fed Manufacturing Index is published. Juniper Networks (JNPR), Lockheed Martin (LMT), and United Technologies report.

On Wednesday, October 24 at 10:00 AM, September New Home Sales will give another read on entry-level housing. At 10:30 AM the Energy Information Administration announces oil inventory figures with its Petroleum Status Report. Advanced Micro Devices (AMD), Ford Motor (F), and Microsoft (MSFT) report.

Thursday, October 25 at 8:30, we get Weekly Jobless Claims. Alphabet (GOOGL) and Intel (INTC) report.

On Friday, October 26, at 8:30 AM, a new read on Q3 GDP is announced.

The Baker-Hughes Rig Count follows at 1:00 PM.

As for me, I am headed up to Lake Tahoe this week to host the Mad Hedge Lake Tahoe Conference. The weather will be perfect, the evening temperatures in the mid-twenties, and there is already a dusting of snow on the high peaks. The Mount Rose Ski Resort is honoring the event by opening this weekend.

Good luck and good trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

October 19, 2018

Diary, Newsletter, Summary

Global Market Comments
October 19, 2018
Fiat Lux

Featured Trade:

(LAST CHANCE TO BUY TICKETS NOW FOR THE MAD HEDGE LAKE TAHOE CONFERENCE FOR OCTOBER 26-27)
(FIVE STOCKS TO BUY AT THE BOTTOM),
(AAPL), (AMZN), (SQ), (ROKU), (MSFT)

October 15, 2018

Tech Letter

Mad Hedge Technology Letter
October 15, 2018
Fiat Lux

Featured Trade:

(FIVE STOCKS TO BUY AT THE BOTTOM),
(AAPL), (AMZN), (SQ), (ROKU), (MSFT)

Five Stocks to Buy at the Bottom

Tech Letter

You don’t want to catch a falling knife, but at the same time, diligently prepare yourself to buy the best discounts of the year.

Interest rates triggered a tsunami wave of selling tearing apart the tech sector with a vicious profit-taking few trading days.

No doubt that asset managers are frantically locking in profits for the rest of the year and protecting ebullient performance from a year to remember.

This week shouldn’t deter investors from picking up bargains that were non-existent for most of the year because the bulk of the highest quality tech names churned higher with lurching momentum.

Here are the names of five of the best stocks to slip into your portfolio in no particular order once the madness subsides.

Apple

Steve Job’s creation is weathering the gale-fore storm quite well. Apple has been on a tear reconfirming its smooth pivot to a software-tilted tech company. The timing is perfect as China has enhanced their smartphone technology by leaps and bounds.

Even though China cannot produce the top-notch quality phones that Apple can, they have caught up to the point local Chinese are reasonably content with its functionality. That hasn’t stopped Apple from vigorously growing revenue in greater China 20% YOY during a feverishly testy political climate that has their supply chain in Beijing’s crosshairs.

The pivot is picking up steam and Apple’s revenue will morph into a software company with software and services eventually contributing 25% to total revenue.

They aren’t just an iPhone company anymore. Apple has led the charge with stock buybacks and will gobble up a total of $100 billion in shares by the end of the year. Get into this stock while you can as entry points are few and far between.

Amazon

This is the best company in America hands down and commands 5% of total American retail sales or 49% of American e-commerce sales.

It became the second company to eclipse a market capitalization of over $1 trillion. Its Amazon Web Services (AWS) cloud business pioneered the cloud industry and had an almost 10-year head start to craft it into its cash cow. Amazon has branched off into many other businesses since then oozing innovation and is a one-stop wrecking ball.

The newest direction is the smart home where they seek to place every single smart product around the Amazon Echo, the smart speaker sitting nicely inside your house. A smart doorbell was the first step along with recently investing in a pre-fab house start-up aimed at building smart homes.

Microsoft

The optics in 2018 look utterly different from when Bill Gates was roaming around the corridors in the Redmond, Washington headquarter and that is a good thing in 2018.

Current CEO Satya Nadella has turned this former legacy company into the 2^nd largest cloud competitor to Amazon and then some.

Microsoft Azure is rapidly catching up to Amazon in the cloud space because of the Amazon-effect working in reverse. Companies don’t want to store proprietary data to Amazon’s server farm when they could possibly destroy them down the road. Microsoft is mainly a software company and gained the trust of many big companies especially retailers.

Microsoft is also on the vanguard of the gaming industry taking advantage of the young generation’s fear of outside activity. Xbox related revenue is up 36% YOY, and its gaming division is a $10.3 billion per year business.

Microsoft Azure grew 87% YOY last quarter. The previous quarter saw Azure rocket by 98%. Shares are cheaper than Amazon and almost as potent.

Square

CEO Jack Dorsey is doing everything right at this fin-tech company blazing a trail right to the doorsteps of the traditional banks.

The various businesses they have on offer makes me think of Amazon’s portfolio because of the supreme diversity. The Cash App is a peer-to-peer money transfer program that cohabits with a bitcoin investing function on the same smartphone app.

Square has targeted the smaller businesses first and is a godsend for these entrepreneurs who lack the immense capital to create a financial and payment infrastructure. Not only do they provide the physical payment systems for restaurant chains, they also offer payroll services and other small loans.

The pipeline of innovation is strong with upper management mentioning they are considering stock trading products and other bank-like products. Wall Street bigwigs must be shaking in their boots.

The recently departed CFO Sarah Friar triggered a 10% collapse in share price on top of the market meltdown. The weakness will certainly be temporary, especially if they keep doubling their revenue every two years like they have been doing.

Roku

Benefitting from the broad-based migration from cable tv to online streaming and cord-cutting, Roku is perfectly placed to delectably harvest the spoils.

This uber-growth company offers an over-the-top (OTT) streaming platform along with the necessary hardware and picks up revenue by selling digital ads.

Founder and CEO Anthony Woods owns 21 million shares of his brainchild and insistently notes that he has no interest in selling his company to a Netflix or Apple.

Roku’s active accounts mushroomed 46% to 22 million in the second quarter. Viewers are reaffirming the obsession with on-demand online streaming content with hours streamed on the platform increasing 58% to 5.5 billion.

The Roku platform can be bought for just $30 and is easy to set-up. Roku enjoys the lead in the over-the-top (OTT) streaming device industry controlling 37% of the market share leading Amazon’s Fire Stick at 28%.

The runway is long as (OTT) boxes nestle cozily in only 40% of American homes with broadband, up from a paltry 6% in 2010.

They are consistently absent from the backbiting and jawboning the FANGs consistently find themselves in partly because they do not create original content and they are not an off-shoot from a larger parent tech firm.

This growth stock experiences the same type of volatility as Square. Be patient and wait for 5-7% drops to pick up some shares.

July 26, 2018

Tech Letter

Mad Hedge Technology Letter
July 26, 2018
Fiat Lux

Featured Trade:
(THE TRADE WAR'S COLLATERAL DAMAGE),
(SWKS), (ACIA), (CRUS), (XLNX), (ROKU), (SQ)

The Trade War's Collateral Damage

Tech Letter

As the trade ruckus rumbles on for the foreseeable future, there are some places to deploy cash and some places to avoid like the zika virus.

The one area of tech to avoid that is clearer than daylight is the small cap chips companies.

Like a fish out of water, you should not feel comfortable holding shares in this type of equity amid the backdrop of an unresolved trade skirmish.

Although the Mandarins ironically need our chips, the uncertainty permeating around small chip firms means it's not time to hold let alone initiate new positions.

Investors still don't know how this standoff with shake out.

Until, there is more clarity going forward, give way to the next guy who can take the heavy loss.

Keep the powder dry for better times.

The long-term demand picture is healthy with IoT, cloud, and software companies never being thirstier for chips.

Short term is a different story with many of these smaller chip companies subscribing to grotesque charts that will make your jaw drop.

Take Skyworks Solutions, Inc. (SWKS) whose shares have spent the majority of 2018 trending lower and are stuck in purgatory.

(SWKS) produces semiconductors deployed in radio frequency (RF) and mobile systems.

This stock has been tainted by the horrid reality that it generates 25% to 30% of revenue from China.

If you have been living in a cave for the past eight months, technology is the battleground for global supremacy pitting two of the leading technological heavyweights in the world against each other in a fiercely contested, drawn-out conflict.

Any American listed chip company doing at least 20% of revenue in China has the same chart trajectory and that is not up.

Adding insult to injury, (SWKS) generates 35% to 40% of its total revenue from Apple.

As we approach every earnings season, the story rewinds and plays again to loud applause.

A slew of analysts appears on air condemning Apple promulgating lower iPhone sales due to surveys taken across various key suppliers giving them a snapshot into production numbers.

Each time, the analysts are proved wrong. However, the avalanche of downgrades that ensues knocks the stuffing out of the small chip companies dipping viciously, at times more than 10% or more on the headline.

One of the larger Chinese contracts that was signed by (SWKS) was with ZTE. Yes, that ZTE, the one the U.S. administration temporarily put out of business for selling telecommunication equipment to North Korea and Iran.

That was the nail in the coffin.

According to the (SKWS) official website, it has an ongoing, expanding relationship with ZTE and its chips would be "powering data cards and USB modems" in ZTE-manufactured next-generation tablets.

Luckily, the American government reversed its initial decision restoring operations to ZTE.

That does not mean it is out of the woods yet as lingering risks still overhang over this company.

This revelation underscores the massive contract risk for companies that unlike behemoths such as Micron, are desperately reliant on just a handful of contracts to propagate short-term revenue.

Effectively, the U.S. administration views American chip companies as collateral damage to the bigger picture.

The only reason the ZTE ban was lifted was because it was a prerequisite to restart talks between both sides.

If the ban was upheld, 75,000 Chinese workers would have needed to polish the dust off their resumes to start a fresh job search.

The inability to sell components to service the Chinese consumer will strike where it hurts most: the bottom line.

Chip producers did $1.5 billion in sales with ZTE in 2017. That business is in a precarious situation when a tweet can just wipe out those contracts in one fell swoop.

Acacia Communications, Inc. (ACIA) churns out high-speed coherent interconnect products.

The stock was beaten down then beaten some more in 2018.

(ACIA) revealed 30% of its $385.2 million revenue derived from one contract with guess who...ZTE.

On word of ZTE ban, (ACIA) plummeted from $40 to $27.50 in one trading day.

The disappearance of a contract this vital to survival is tough for a small business to handle even if temporary.

Layoffs and a squeezed financial situation apply unrelenting pressure on management to find an elixir.

Cirrus Logic Inc. (CRUS) pumping out a mix of analog, mixed-signal, and audio DSP integrated circuits (ICs) was trading more than $62 just a year ago.

Fast forward to today and its shares are at a measly $39.

To say Cirrus Logic's eggs are in one basket is an understatement.

(CRUS) procures 80% of revenue from Apple.

It's all hunky-dory to develop a close relationship with Apple, but in light of this unpredictable economic climate, shares have been hit hard and there is no end in sight.

(CRUS) even won a contract to help produce Apple's noise canceling and water-resistant AirPods, but that does not do anything to change the narrative.

The vultures are circling around this name and it was time to abort a long time ago.

Xilinx, Inc. (XLNX) is another small chip company and the first to create the first fabless manufacturing model headquartered in San Jose, California.

This company, founded in 1984, procures around 35% of revenue from China

The trade headwinds have set this stock in the crosshairs, being the victim of frequent 5% drops and two 10% slides in 2018.

It is a miracle this stock is slightly in the green this year, and (XLNX) is one of the lucky ones.

Skim through the rest of small cap chips stocks and the charts look the same. Dreadful with massive rally busting sell-offs.

The extreme volatility in and of itself is a sensible reason to steer clear of these names.

The headline risks that splash across the morning news spreads are a daily reminder that chip stocks, big and small, aren't out of the woods yet.

The Johnny-come-latelies must expose themselves to higher quality, unique assets which possess little or no China exposure.

For the experts, trade the volatility at your peril. But if volatility is what you want with scarcity of value, leg into Roku (ROKU) or Square (SQ) on moderate sell-off days.

________________________________________________________________________________________________

Quote of the Day

"Technological progress is like an ax in the hands of a pathological criminal," said German-born theoretical physicist Albert Einstein.

June 27, 2018

Tech Letter

Mad Hedge Technology Letter
June 27, 2018
Fiat Lux

Featured Trade:
(DON'T NAP ON ROKU)
(MSFT), (ROKU), (AMZN), (AAPL), (CBS), (DIS), (NFLX), (TWTR), (SQ), (FB)

Don't Nap on Roku

Tech Letter

Unique assets stand the test of time.

In an era of unprecedented disruption, unique assets' strength begets strength.

This is one of the big reasons the vaunted FANG group has carved out power gains in the business landscape bestowed with a largesse dwarfing any other sector.

As the FANGs trot out to imminent profitability by supercharging massive scale, the emerging tech environment gives food for thought.

These up-and-coming companies fight tooth and nail to elevate themselves to FANG status because of the ease of operating in a duopoly or an outright monopoly.

Microsoft (MSFT) is the closest substitute to an outright FANG. In many ways CEO Satya Nadella has positioned himself better than Facebook (FB) and Apple.

The Mad Hedge Technology Letter has pounced on the newest kids on the block offering subscribers buy, sell or hold recommendations zoning in on the best first and second tier companies in tech land.

The top echelon of the second tier is led by no other than Jack Dorsey and both of his companies, Square (SQ) and Twitter (TWTR), offer idiosyncratic services that cannot be found elsewhere.

I have devoted stories to Dorsey gushing about his ability to build a company and rightly so.

Another solid second tier tech company bringing uniqueness to the table is Roku (ROKU), which I have talked about in glowing terms before when I wrote, "How Roku is Winning the Streaming Wars."

To read the archived story, please click here.

Roku is a cluster of in-house, manufactured, online streaming devices offering OTT (over-the-top) content in the form of channels on its proprietary platform.

The word Roku means six in Japanese and it was chosen because Roku was the sixth company established by founder and CEO Anthony Wood commencing in 2002.

Cord-cutting has been a much-covered topic in my newsletters and this generational shift in consumer behavior benefits Roku the most.

In 2017, 25% of televisions purchased were Roku TVs. According to several reports, more than half of all streaming players purchased last year were Roku players.

This would explain how Roku has shifted its income streams from the physical box itself to selling ads and licensing agreements.

Yes, Roku earns the lion's share of its profits similar to the rogue ad seller Facebook.

Roku does not actually sell anything physical except the box you need to operate Roku, which earned Roku a fixed $30 per unit.

The box serves as the gateway to its platform where it sells ads. Migrating to higher caliber digital businesses like selling ads will stunt the hardware revenue part of its business.

That is all part of the plan.

A new survey conducted regarding fresh cord-cutters demonstrated that out of 2,000 cord-cutters questioned, 70% already had a Roku player and felt no need to pay for cable TV anymore.

Second on the list was Amazon Fire TV at 34%, and Apple TV (AAPL) came in third at 10%.

The dominant position has forced content creators to pander toward Roku TV's platform because third-party content creators do not want to miss out on a huge swath of cord-cutter millennials who are entering into their peak spending years and spend most of their time parked on Roku's platform.

Surveys have shown that millennials do not need a million different streaming services.

They only choose one or two for main functionality, and in most cases, these are Netflix (NFLX) and Amazon (AMZN).

Roku allows both these services to be integrated onto its platform. Cord-cutters can supplement their Netflix and Amazon Prime Video binge with a few more a la carte channels to their preference depending on points of interest.

In general, this is how millennials are setting up their entertainment routine, and all roads don't lead through Rome, but Roku.

If the massive scale continues at this pace, 2020 could be the year profitability explodes through the roof.

The next 18 months should give way to parabolic spikes, followed by consolidation to higher lows in the share price.

When I recommended this stock, its shares were trading at a tad above $32 on April 18, 2018, and immediately spiked to $47 on June 20, 2018.

The tariff sell-off hit most second tier tech companies flush in the mouth. The 5% and occasional 7% intraday sell-offs churn the stomach like Mumbai street food during the height of the Indian summer.

That is part and parcel of dipping your toe into these rising stars.

The move ups are parabolic, but the sell-offs make your hair fall out.

Well, glue your locks back onto your scalp, because we have reached another entry point.

Roku is now trading back down in the low $40 range, and I would bet my retirement fund that Roku will end the year above $50.

This unique company is expected to grow its subscriber base by at least 20% annually, and in five years total subscribers will eclipse 45 million users.

Reinforcing its industry leadership, traditional media companies such as Disney and CBS do not have built-in streaming viewership that comes close to touching Roku.

This has forced these traditional media giants to push their content through Roku or lose a huge amount of the 18 to 34 age bracket for which advertisers yearn.

These traditional players are armed with robust ad budgets, and a good bulk of it is allocated to Roku among others.

For each additional a la carte channel users sign up for on Roku, the company earns a sales commission.

As a tidal wave of niche streaming channels plan to hit the market, the first place they will look to is Roku's platform and this trend will only become stronger with time.

A prominent example was Sling TV, which showed up at Roku's front door first before circling around the rest of the neighborhood.

The runway for Roku's three main businesses of video ads, display ads, and licensing with streaming partners, is long and robust.

The one caveat is the fierce competition from Amazon Fire TV, which puts its in-house content on Amazon front and center when you start the experience.

Roku has head and shoulders above the biggest library of content, and the Amazon effect could scare traditional media for licensing content to Amazon.

We have seen the trend of major players removing their content from streamers because of the inherent conflict of interests licensing content to them while they are developing an in-house business.

It makes no sense to voluntarily offer an advantage to competition.

Roku has no plans to initiate its own in-house original content, and this is the main reason that Amazon and Netflix will lose out on Disney (DIS), CBS (CBS), NBC, and Fox content going forward.

These traditional players categorize Roku as a partner and not a foe.

To get into bed with the traditional media giants means digital ads and lots of them. In terms of a user experience, the absence of ads on Netflix and Amazon is a huge positive for the consumer experience.

But traditional players have the option of bundling ads and content together on Roku making Roku even more of a diamond in the rough.

In short, nobody offers the type of supreme aggregator experience, deep penetration of cord-cutting viewership, and the best streaming content on one graphic interface like Roku.

It is truly an innovative company, and it is in the driver's seat to this magnificent growth story.

It's hard to argue with CEO Anthony Wood when he says that Roku is the future of TV.

He might be right.

If Roku keeps pushing the envelope enhancing its product, it will be front and center as a potential takeover target by a bigger tech company.

Either way, the scarcity value of these types of assets will drive its share prices to the moon, just avoid the nasty sell-offs.

_________________________________________________________________________________________________

Quote of the Day

"Google's not a real company. It's a house of cards," - said former CEO of Microsoft Steve Ballmer.

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