Today brings us another “black box” teaser pitch — we see similar themes across investment teases, and the “black box” is popular… a presentation with some pundit holding up a mysterious box sand saying, “thar be gold!”
This time around, it’s Hilary Kramer pitching us as she tries to recruit subscribers to her GameChangers service ($149/yr)… this is what the email said when it popped up for me starting a couple days ago:
“What’s inside this small box is the greatest Game Changer I’ve ever seen….
“Nothing compares. Even the world’s biggest, most powerful businesses can’t compete with it…
“Amazon gave up on trying to develop its own competitive tech, acknowledging it couldn’t catch up.
“Apple threw in the towel and agreed to use its tech….
“When’s the last time you heard a smaller company standing up to both Amazon and Apple, and winning?”
Sounds compelling, right? It is a pretty innocuous looking box, I guess it could be anything, but let’s dig into Kramer’s clues and see what it is she’s talking about.
The “611% gains” she talks about are historic, that’s what the stock did in nine months for early investors, we’re told. We don’t know when… but she also does say that it has already returned 62.8% in its rebound since the COVID-19 collapse… so that’s enough to get us to click through from the email into her big ol’ presentation to see what details might be dropped in her push to sell the newsletter.
This is how the presentation starts…
“… what’s inside this black box can already be found in 40 million homes.
“It’s being built into 1 out of every 3 new smart TVs sold.
“At last count, 30,000 of them are being sold each day.
“And every one of them makes money every hour it is used.”
Oh, so there we go… we’ve got our answer. But don’t worry, we’ll check the rest of the clues just to make sure… and to get an idea of what Kramer’s reasoning might be.
We get some clues about how much revenue the company generates per user…
“… this perfect business generates $2.30 per home for the company.
“With 40 million homes in America, that’s $86 million.
“Every single day.”
And we get more detail on that past 611% surge — apparently it was from December 2018 to September 2019, so still pretty fresh. And while it dropped with the coronavirus news in March, it has roared back to where it was earlier in the year. Kramer says that this is because the business is actually a beneficiary of the coronavirus lockdown…
While many companies are losing millions or going out of business completely, this one is making millions more a day… because of the pandemic.
The company has something to do with video streaming — not unlike our look at Limelight Networks yesterday — so are you getting closer to guessing the answer? Here’s what she says…
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“As the streaming wars heat up, some channels will win and some will lose.
“Yet with the company I’m talking about, it doesn’t matter which company’s content wins, like Disney’s with Marvel and Pixar…
“Or which independent channels thrive, like HBO or ESPN… and it doesn’t matter whose platform they use, like Sling or even Apple TV…
“That’s because, to come to your living room TV, it has to go through what’s in this black box.
“And our company is the only one that makes it.”
But it’s not really those “black boxes” that they’re profiting from, according to the ad:
“… it doesn’t even make money from the device.
“It practically gives them away at cost in order to get it into households.
“That’s because the real money-making business of this company is online advertising… and the black box gives it a virtual monopoly on it.”
She forecasts them tripling its user base just in the US, generating $400 million in profit per quarter, and supporting a $30 billion valuation — which she says is 3X where the company is now, so it’s roughly a $10 billion stock.
OK, fine, we’ll take you out of your misery now… this is, of course, good ol’ Roku (ROKU), the provider of those little “black box” streaming devices that allow you to serve up over the top (OTT) and streaming TV content directly to your TV.
I don’t know why Kramer teases this as being “the only one that makes” these black boxes — they’re not even the only one who makes Roku-branded stuff, a lot of their revenue comes from licensing out the Roku operating system to makers of Smart TVs, and there are dozens of other “black boxes” that you can use to stream Netflix, Hulu, AppleTV, Amazon Prime or whatever other video service to your television. Roku is the leader, I’d argue, partly because they’re the only large streaming equipment maker that doesn’t have a dog in the Amazon/Netflix/Apple fight so can be perceived as offering a level playing field (they don’t favor one provider over another, or block major providers like Amazon blocked YouTube for a while), but it doesn’t have anything close to a monopoly… and some of their competitors, like Google with its Chromecast and Amazon with its Fire TV Stick, are huge and very deep-pocketed. Apple and Amazon have not abandoned the “streaming device” business.
Don’t get me wrong, I really like Roku and have built up a meaningful position in the stock since I started buying on March 2… but it doesn’t have a monopoly. In fact, the reason it first caught my eye was because of that huge drop last fall, which was itself caused by another chink in that monopoly idea when Comcast announced that they would be giving away streaming boxes for free. The actual equipment to provide streaming video is pretty well commoditized, with several big players making high-quality products available quite cheap — Roku leads, and arguably has the best devices, but they are far from alone in the marketplace.
Roku’s primary source of revenue is selling devices and licensing their Roku operating system for Smart TVs, and that did surge higher when people were stuck at home, but their primary source of profit is advertising — mostly the ads they insert into free content for some of the lower-profile stream