ROKU Stock Races Ahead in the Streaming Space

ROKU stock
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Roku Stock Strengthens on Impressive Growth

With the never-ending options being offered by technology today, viewers don’t want to stick to their regular television sets anymore. The streaming industry is on fire and few players stand to dominate this space.

Streaming simply means digitally distributing video and audio content over the Internet. With rising Internet speeds, this is becoming the new normal, and streaming companies are hitting the headlines. Stocks of some of these players are expected to reward their investors handsomely over the coming years.

Today’s stock belongs to this category.

Roku Inc (NASDAQ:ROKU) is a pioneer in the television streaming market. Roku’s streaming players offer a more convenient and fun way to watch TV. Roku is becoming the front page of TV, from where users can easily search, discover, and access over 500,000 movies and TV episodes in the U.S., together with live sports, music, news, and much more.

The Roku platform offers ad-supported channels like “YouTube” and “CBS News,” subscription channels like “HBO Now” and “Netflix,” as well as transactional channels like “Amazon Video” and “Google Play.”

Roku Inc sells streaming players that can be attached to TVs. The company also partners with TV brands through its “Roku TV Licensing Program.”

Roku TVs, which are built and sold by the company’s TV brand licensees, integrate the operating system “Roku OS.”

As per the company’s recent annual report, approximately one in five smart TVs sold in the U.S. in 2017 were Roku TVs. Management is optimistic that its share of smart TVs will continue to grow. This bodes well for ROKU stock.

As TVs become smarter and more interactive, they will need sophisticated software to run them. There is a big opportunity in replacing older TVs with Roku TVs, as older TVs lack a purpose-built operating system. Roku OS is emerging as a winner in this space, which will likely translate into higher gains for Roku stock.

Consumers stand to gain with TV streaming as they get a better user experience.

As viewers spend more of their time watching programs via smart TVs and over-the-top (OTT) video services, advertisers do not want to miss the immense opportunity that this transition offers.

Roku stands to gain from this shift in advertising budgets. The company has built an advanced TV ad platform with strong targeting and measurement capabilities. This positions Roku to capture a growing share of the approximate $70.0-billion annual U.S. TV advertising market.

As mentioned in its latest quarterly report, linear TV ratings are declining. The report mentions the study by The Nielsen Company, which says that prime time linear TV ratings among 18- to 49-year-olds have declined by 40% over the last four years. (Source: “Q1 2018 Shareholder Letter,” Roku Inc, May 9, 2018.)

As consumers shift their viewing habits from traditional TV to streaming services, advertisers are increasingly turning to OTT services and the Roku platform to reach these audiences.

Today, approximately 10% of all adults between 18 and 34 can only be reached on TV through the Roku platform. The company expects that percentage to grow, which would make its platform an even more important way for brands to engage TV viewers.

Roku ended the first quarter with 20.8 million active accounts, an increase of 47% through the year. Roku users streamed 5.1 billion hours in that quarter, with the fastest growth coming from ad-supported content.

The average revenue per user (ARPU) increased to a record $15.1 in the trailing 12 months. This was the fastest ARPU growth rate in more than 18 months as the company continues to expand money-making capabilities of its platform as well as capture a larger share of TV ad budgets.

There is a big upside to ARPU expected in the coming years, which would push ROKU stock higher. Given its strong momentum and performance, the company has raised its outlook for full-year 2018.

ROKU stock has gone up by more than 100% since its public debut last September, as the following stock chart shows.

Chart courtesy of StockCharts.com

Analyst Take

The latest results instill a lot of confidence in Roku stock. The company is executing its strategy well and appears to be a strong contender against the big players. With content distribution and TV advertising increasingly moving to streaming platforms, Roku will likely continue to grow.

If the Roku platform continues to keep capturing a higher share of TV ad budgets, its stock could reward investors with triple-digit gains in the coming years.