24/7 Wall St.

Roku Inc. (NASDAQ: ROKU) has enjoyed a very successful 2019. Its shares have risen exponentially, the rekindled stock market strength has its shares back near the prior peak, and its 2019 revenues are still projected to be up almost 50% for the year. Some companies want to keep their share surge going endlessly, and sometimes share sales come into the mix.

An automatic shelf registration statement was filed with the Securities and Exchange Commission on Monday after the close for Roku to sell up to 571,459 shares of its common stock. Rather than it being to add to Roku’s capital, the sellers are prior owners of Dataxu, which was acquired by Roku. Another filing was submitted to the SEC for up to a million shares of stock on Tuesday morning. Another set of filings showed some key insider selling as well.

While the first filing represents close to $100 million in shares at the current time, investors should keep in mind that 571,459 shares that can be sold compare to 87,744,469 Class A shares and 30,264,246 Class B shares outstanding as of September 30, 2019.

The good news here is that this particular offering is not a formal secondary offering. That means that there is no assured new pouring out of shares into the market all at once. The filing said:

The selling stockholders may offer and sell or otherwise dispose of the shares of common stock described in this prospectus from time to time through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. The selling stockholders will bear all underwriting fees, commissions and discounts, if any, attributable to the sales of shares and any transfer taxes. We will bear all other costs, expenses and fees in connection with the registration of the shares.

Of the second filing, the 1 million shares is on behalf of Roku itself. The company has entered into an equity distribution agreement with Citigroup, and the company may offer and sell up to an aggregate of a million of its Class A common shares. The timing is noted as “from time to time” and the company is not absolutely raising cash per the filing. The use of proceeds was noted below:

We intend to use the net proceeds from this offering, if any, for working capital and general corporate purposes, including sales and marketing activities, research and development activities, general and administrative matters, repayment of debt, other business opportunities and capital expenditures. We may also use a portion of the net proceeds to acquire or invest in businesses, products and technologies that are complementary to our own, although we have no current commitments or agreements with respect to any acquisitions or investments as of the date of this prospectus supplement. The precise amount and timing of the application of such proceeds will depend upon our funding requirements and the availability and cost of other capital. As of the date of this prospectus supplement, we cannot specify with certainty all of the particular uses for the net proceeds that we will have from the sale of the shares of our Class A common stock. Pending the use of the net proceeds from this offering, if any, we may invest the net proceeds in investment grade, short-term interest-bearing obligations, such as money-market funds, certificates of deposit, or direct or guaranteed obligations of the United States government, or hold the net proceeds as cash.

There is also a chance that Roku will decide not to raise additional capital if the impact is too great. The company’s third SEC filing said:

We may terminate the Equity Distribution Agreement upon written notice to the Sales Agent for any reason or by the Sales Agent upon written notice to us for any reason or at any time under certain circumstances, including but not limited to the occurrence of a material adverse change in our company.

Insider sale filings were also seen in Roku, with the chief financial officer selling 95,789 shares associated with stock options exercised, as well as 5,000 more from another director of the company.

Roku shares previously closed at $160.12, and its shares were trading down 3% at $155.30 shortly after the market’s open on Tuesday. Roku has a 52-week range of $26.30 and $176.55, and its consensus target price from Refinitiv is $138.69. It also has more than an $18 billion market cap.

24/7 Wall St.
Why Credit Suisse Sees the S&P 500 Gaining 10% in 2020