Roku, Inc.: Initial Public Offering

In September 2017, a senior portfolio manager at Portland Capital Management had all her attention focused on the upcoming initial public offering (IPO) of Roku, Inc. The company had just updated its initial filing to indicate an offer price between $12 and $14, and Portland Capital Management had an opportunity to take a substantial position in that offering. She saw the upside potential in Roku’s shift from hardware-related revenue streams (player sales) to platform-related revenue streams (advertising and content purchases made on the platform). But she was also well aware of the riskiness of this strategy and the uncertain state of IPO markets at that time. This case has been used successfully as an introduction to IPOs at the MBA level, but it is rich enough to serve as a second case after the topic has been introduced, particularly if the instructor wishes to focus on elements related to ownership structure, selection of comparables, or the IPO process. The analytics are sufficiently clear and major revenue assumptions already forecasted, so it can be used in undergraduate courses as well. The case does require that students have some familiarity with enterprise valuation; otherwise they may not understand the required analysis.