Skeptics will wonder if streaming video company Roku (ROKU) could collapse because of the Silicon Valley Bank failure.
Roku executives admit their company had $487 million, or 26% of its cash, in Silicon Valley Bank accounts, Endgadget reports. Silicon Valley Bank collapsed on 10 March 2023. The Federal Deposit Insurance Corporation (FDIC) was trying to auction the bank off to another institution, The Washington Post reports.
The California Department of Financial Protection closed Silicon Valley Bank and appointed the FDIC as receiver of its assets on 12 March 2022. The FDIC plans to pay Silicon Valley Bank’s uninsured depositors, such as Roku, a dividend, a press release reports.
Originally there were fears Roku could not get its money back because the FDIC only insures bank deposits of up to $250,000. Moreover, US Treasury Secretary Janet Yellen said the Federal Government will not bail out Silicon Valley Bank, the Associated Press reports.
However, the Biden administration saved Roku by announcing the U.S. Treasury Department and the Federal Reserve, will backstop all Silicon Valley Bank deposits regardless of any amount, The Washington Post reports. Extraordinarily, they made the announcement late on Sunday 12 March 2023. Hence Roku can withdraw all of its money.
Will Silicon Valley Bank’s collapse kill Roku?
Silicon Valley Bank’s troubles are creating problems for Roku (ROKU) because the company $1.962 billion in cash and short-term investments on 31 December 2022.
Hence, Roku could lose 26% of its cash. However, Roku could still access $1.457 billion in cash. Thus, Roku can survive and can probably cover any shortfalls by borrowing.
Notably, Roku had $4.413 billion in total assets it could borrow against on 31 December 2022. Consequently, I do not think the Silicon Valley Bank debacle can kill Roku but it will create some pain.
How Much Money is Roku (ROKU) making?
I think the Silicon Valley Bank mess could create long-term problems for Roku (ROKU) because the company loses money.
Notably, Roku reported four quarters of operating losses in 2022. Plus, Roku’s quarterly operating losses grew from $23.49 million on 31 March 2022 to -$249.90 million on 31 December 2022. Meanwhile, Roku’s revenue growth rate fell from 27.78% on 31 March 2021 to 0.2% on 31 December 2022.
However, Roku’s quarterly gross profits and quarterly revenues are stable. For example, Roku reported $865.33 million in quarterly revenues on 31 December 2021 that fell to $867.06 million on 31 December 2022. Similarly, the quarterly gross profit fell from $379.64 million on 31 December 2021 to $364.38 million on 31 December 2022.
The Silicon Valley Bank losses could hurt Roku because the company loses money.
How Much Cash is Roku (ROKU) burning?
Roku (ROKU) is also burning cash. For example it reported a quarterly ending cash flow of -$58.4 million and a quarterly ending cash flow -$3.92 million on 31 December 2022.
Roku can generate some cash. It reported a quarterly ending cash flow of $2.237 billion on 31 December 2022. Similarly, there were quarterly operating cash flows of $18.78 million on 30 September 2022 and $110.99 million on 31 March 2022.
Tellingly, I think Roku is borrowing some money because it reported a quarterly financing cash flow of $9.54 million on 31 December 2022.
Roku’s Debts are Exploding
Roku’s debts exploded in 2022. The total debt grew from $89.87 million on 31 December 2021 to $664.99 million on 31 December 2022.
Moreover, the cash and short-term investments fell from $2.146 billion on 31 December 2021 to $1.962 billion on 31 December 2022 before the Silicon Valley Bank troubles. Hence, Roku ended 2022 with less cash and far more debt.
Yet, Roku has a little more value because its total assets grew from $4.082 billion on 31 December 2021 to $4.413 billion on 31 December 2022. Hence, the only thing growing fast at Roku is the debts which is terrible.
What Value Does Roku Offer?
The true value at Roku (ROKU) is the subscriber base. The number of active Roku accounts grew from 60.1 million in the fourth quarter of 2022 to 70 million in January 2023, Statista estimates.
In contrast, there were 53.6 million Roku accounts in the first quarter of 2021 and 39.8 million Roku accounts in the first quarter of 2020. Hence, Roku is experiencing significant growth.
Importantly, Roku is reaching 70 million viewers which rivals the largest free add supported television (FAST) service’s user numbers. The biggest FAST, Paramount’s Pluto had 72 million monthly active users in the second quarter of 2022.
Mr. Market Overprices Roku (ROKU)
Thus, I think Roku will survive because of its audience. I suspect somebody will buy Roku to get access to the 70 million accounts. Possible buyers for Roku (ROKU) include Paramount (PARA), WarnerBrosDiscovey (WBD), and Disney (DIS).
I think Roku could be a good buy for a media giant such as Paramount. However, I think Roku is a terrible stock for ordinary investors. I consider Roku a poor stock because Mr. Market overpriced it at $61.71 on 13 March 2023.
Notably, Roku has lost around 40% of its value in 2022. Mr. Market paid $100.69 for Roku on 14 March 2022. I think Roku’s stock price will keep falling. Thus investors need to avoid Roku.
Roku will survive the fall of Silicon Valley Bank but it may not survive as an independent company.
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