The majority of you reading this that own a streaming media device will likely own a Roku (NASDAQ: ROKU) – whether it be the Roku Express, Roku Ultra, Roku Premiere, or the new Roku Soundbar or Streambar.
Good investment opportunities often begin from being a loyal user of the product! If you're not a Roku customer, you've probably noticed its triple-digit growth in the last couple of years and wished you'd got in at a low price.
Is Roku a good stock to buy? Has it already passed its major growth spurt? I believe Roku to be one of the best investment opportunities for years to come, and here's why.
Roku Stock: Investment Overview
Roku is the leading company that provides streaming media devices and streaming services worldwide. As of 2019, it controls about 36% of the streaming media market, followed by Amazon Fire TV at 28%, Apple TV at 15.5%, and Google at 12% (data source: Statista.com).
Roku makes money through selling it's hardware devices and selling advertising space on its platform to businesses. What makes them different? Among many other things, they are a universal platform that works with all TV's and major tech companies.
In Roku's own words:
“Roku pioneered streaming to the TV. We connect users to the streaming content they love, enable content publishers to build and monetize large audiences, and provide advertisers with unique capabilities to engage consumers.”https://ir.roku.com/
A sound financial foundation can indicate a great potential investment opportunity – and Roku checks all the boxes I like to see. Some of them include the following financial highlights: (according to Yahoo Finance and Roku shareholder letter)
- Total revenue growth of 73.10% year over year
- Platform revenue growth of 78% year over year
- Gross profit growth of 81% year over year
- The average revenue per user growth of 20% year over year
- Over $1 billion of cash in the bank
- Debt that is less than their cash on hand – sitting at roughly $439 million in debt
- Roku's earnings reports have almost always beat analysts' earnings estimates
Their current founder and CEO is Anthony Wood – a serial entrepreneur with a history of success and innovation. Anthony was originally part of the Netflix executive team and spun off his idea to build a streaming media platform. As of right now, 84% of employees approve of Anthony Wood as the CEO.
As a loyal customer of Roku, I own many of their products, most notably the new Roku Soundbar, a modern soundbar with a Roku streaming media player built-in. The product is phenomenal, and the platform is simple and easy to use. There is a reason they hold over 35% of the streaming media market – because their product is the best.
In short, they have sound financials, growing revenue, a highly innovative CEO with a history of success, and an exceptional product. All of this spells out a great investment opportunity.
Reasons to buy ROKU
If my research shown in the fundamental analysis above isn't enough to convince you, consider these additional reasons to invest in Roku:
- Large market opportunity #1: According to The Motley Fool, estimates show that traditional TV ad spends in 2020 will be approximately $60 billion and only $9 billion of this spend is on connected TV (CTV).
- Large Market Opportunity #2: I like to compare companies to major players in the industry or related industries. For Roku, I look at Netflix (seeing it was a spinoff of Netflix anyway). Currently, Roku is worth about $37 billion, and Netflix is worth $216 billion and growing. If Roku grows to anything the size of Netflix, we're looking at possible 10x growth!
- The Roku Channel: Roku has it's own channel – The Roku Channel – that provides free and premium TV. This channel currently reaches 54 million people and is now offered on other devices like the Fire TV and Apple TV via AirPlay.
- Competitive advantage: Roku has multiple competitive advantages, with two major ones being it's universal approach to streaming media and it's exclusive TV manufacturing partnership deals in which manufacturers build their TVs with a Roku device built-in.
- First-mover advantage: While streaming media isn't totally new since the age of the internet, Roku is the pioneer of an actual streaming media device for television and movies.
- Disruptive growth: Growth supported by growing revenue and strong financials often indicates that growth will likely continue. While many may start saying Roku is overpriced, keep in mind that Amazon was considered “overpriced” years before it reached a $1 trillion valuation. Bet on the winners, not the losers!
- Strong brand: What started as a cheap option to stream TV and movies seamlessly has grown into the go-to product that provides high-class media players, soundbars, and a data-driven technology platform – all of which has built powerful brand equity for the name Roku.
With every investment comes risk. Among them may be reasons some might balk at investing in Roku. Consider the following risks:
- Competition: Roku's biggest risk is its competition from Amazon's Fire TV and the Apple TV. The Fire TV has grown its market share by over 5% in recent years to 30%, up from 24%. When you're doing amazing things like Roku, there is a risk that one of the “Big Dogs” like Amazon, Google, Apple, Facebook, or other major tech companies may come in and still their market with an eye-opening product.
- International expansion: While this could be seen as both a risk and an opportunity, expanding internationally comes with its obstacles, including legal issues, market acceptance, more competition, etc.
You're probably aware by now that I am very bullish on Roku, and I own long positions in the company's stock. I see the rewards being far greater than any potential risks, not to mention I am a happy and loyal Roku customer. For me, Roku is a strong buy for the long-term investor.
To date, my positions in Roku have grown by more than 100% in value! I'll be holding onto these shares for years to come.