Streaming platform Roku is among the companies impacted by the collapse of Silicon Valley Bank, a 40-year-old bank that served as a lender to the technology sector. Last Friday, Roku filed Form 8-K with the Securities and Exchange Commission indicating they learned that the California Department of Financial Protection and Innovation had closed SVB, appointing the Federal Deposit Insurance Corporation as the receiver of deposits.

Roku stated they had total cash and cash equivalents of approximately $1.9 billion as of March 10. About $487 million, or 26% of the company’s cash and cash equivalents, were deposited with SVB. The balance is deposited at several large financial institutions. Roku’s deposits with SVB were largely uninsured.

The FDIC’s standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. Products that are not FDIC-insured include stocks, bonds, mutual funds, crypto assets, life insurance policies, annuities, municipal securities, safe deposit boxes and their contents, and U.S. Treasury bills, bonds or notes. U.S. Treasury bills, bonds and notes are backed by the full faith and credit of the U.S. government.  

“At this time, the Company does not know to what extent the Company will be able to recover its cash on deposit at SVB,” Roku said in its SEC filing. “Notwithstanding the closure of SVB, the Company continues to believe that its existing cash and cash equivalents balance and cash flow from operations will be sufficient to meet its working capital, capital expenditures, and material cash requirements from known contractual obligations for the next twelve months and beyond.”

What exactly happened? There are many factors at play in the collapse of SVB, but it boils down to “a run on the bank” when investors and depositors lost faith in the bank and its ability to meet its obligations. On March 8, SVB announced it had sold $21 billion in securities at a loss of $1.8 billion. To make up for the loss, the bank was going to raise $2.25 billion in additional capital. Shares in parent company SVB Financial dropped 64% in pre-market trading after dropping 60% the day before as investors dumped their stock, reports Forbes.

What happens next

On Sunday, Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell and FDIC Chairman Martin J. Gruenberg released a joint statement.

“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the statement said.

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“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13.  No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” they added.

About Roku

Roku sells streaming media players, connected devices, speakers and smart TVs. They also operate the Roku Channel, a streaming dashboard viewers can access free and subscription streaming services as well as live TV. For example, viewers can access Netflix, Disney+, HBO Max, Paramount+, Hulu, Prime Video, Peacock and Tubi. From the Roku Channel, viewers can also access Roku Originals like Meet Me in Paris, Idea House Mountain Modern and Martha Cooks.

Based on Roku’s statement in the 8-K filing, it does not appear that company operations will be impacted for at least the next 12 months. Last month, Roku released its 2022 financials. Key highlights include the following:

• Total net revenue was $3.1 billion, a 13% increase year-over-year.
• Platform revenue was $2.7 billion, a 20% increase year-over-year. This revenue comes through ad sales, distribution of streaming services, distribution of FAST channels, Roku Pay, and Media & Entertainment promotional capabilities.
• Gross profit was $1.4 billion, a 2% increase year-over-year. The company is making money on the Roku platform, but not on devices.
• Roku had 70 million active accounts, a net increase of 9.9 million active accounts since 2021.
• Streaming hours increased 14.3 billion hours to 87.4 billion.
• In the fourth quarter, average revenue per user grew to $41.68, compared to $40.67 in the fourth quarter of 2021.

Other subscription companies impacted

Roku is only one of many companies impacted by the failure of SVB. Other subscription companies, or former subscription companies, have also been impacted:

• BuzzFeed, a digital news site best known for its quizzes and celebrity gossip, offers monthly and annual memberships
• Roblox, online gaming firm that has a premium subscription offering
• Stitch Fix, an online styling service (used to be a subscription box company)
• PCI Pal, a UK-based SaaS provider

What’s next

The Federal Reserve Board has appointed Vice Chair of Supervision Michael S. Barr to lead a review of the supervision and regulation of SVB. Their findings will be released to the public by May.

“The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve,” said Chair Jerome H. Powell.

“We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience,” said Vice Chair Barr.

Insider Take

It is early in the game, and it is likely that we are only hearing part of the story. There are likely more companies to be impacted, and the unraveling of SVB is probably more complex. Hopefully, the truth will come out in the investigation, so the federal government can prevent more bank collapses. Right not, things are tough for everyone and this makes the global economy that much more uncertain.  

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