Shares of Roku (NASDAQ: ROKU) went public back in September 2017 at a price of $14. It is currently trading at $429 which means the stock has generated annual returns of almost 150% on average. Roku stock is up close to 35% in the first half of 2021 and is one of the top growth stocks in the technology sector.
Roku - an overview
Roku operates a TV streaming platform. The company has two primary business segments, Platform, and Player. Its platform allows users to discover and access various movies and TV episodes, as well as live sports, music, news, and others. As of December 31, 2020, the company had 51.2 million active accounts.
It provides digital and video advertising, content distribution, subscription, and billing services, as well as other transactions, brand sponsorship, and promotions, and audience development campaigns. Roku also manufactures, sells, and licenses smart TVs under the Roku TV name.
Roku has managed to increase its sales from $512 million in 2017 to $1.78 billion in 2020. Analysts tracking the stock expect Roku to increase sales by 55% year over year to $2.76 billion in 2021 and by 38% to $3.81 billion in 2022. While Roku ended 2020 with a net loss, Wall Street expects the company to post an adjusted profit of $0.46 per share in 2021. Its EPS is forecast to improve to more than double to $1.12 per share in 2022.
Key growth drivers for Roku
The digital ad segment in the streaming space is forecast to rise from $8 billion in 2020 to $18 billion by 2024 in the U.S. Roku aims to gain traction in this rapidly expanding market. In Q1 of 2021, the number of streaming ad impressions tripled year over year driving platform revenue sales by 101%, compared to the year-ago quarter. The company has also invested in the Roku channel which is a streaming service that primarily acts as a content aggregator while offering proprietary content as well.
The Roku Channel has experienced massive growth in the last four quarters as subscriptions to third-party party services more than doubled in Q1. Roku’s shareholder letter confirmed the Roku Channel has 70 million subscribers at the end of Q1, up from 63 million in Q4 of 2020.
The company’s management is optimistic about the explosive growth in this vertical and considers the Roku Channel as a flywheel driven by easy access to content and increasing advertiser spending.
Roku explained, “This flywheel is enabling us to be more creative and expansive in sourcing content suited to an AVOD (advertising video on demand) business model.” It added, “We expect that our content investment will continue to be commensurate with the scale and growth trajectory of The Roku Channel.”
What next for investors?
Roku will continue to benefit from the accelerated shift towards online streaming. It is expected to spend over $1 billion on content in the next year. Compared to Netflix’s content expenditure of $17 billion, it might seem minuscule however Roku is also a very smaller player compared to the streaming giant.
Roku is successfully monetizing its user base and generated more than $32 per user in the last four quarters. In the first quarter of 2021, the company increased sales by 79% year over year while active accounts were up 35%. Roku has also reported positive cash flows, net earnings, and robust liquidity in the last 12-months.
Roku is one of the top growth stocks and part of a market expanding at an enviable rate.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
