Investors are probably still trying to make sense of it Roku (NASDAQ: ROKU) stock. The pandemic darling crashed during the 2022 bear market and never recovered, leaving trading about 85% below its all-time high in July 2021.
However, despite the stock’s troubles, its user base and hours spent on the platform have never stopped growing. That and other factors could serve as the catalyst that ultimately sparks a recovery in entertainment stocks.
Roku State
Some user numbers may leave investors wondering why the stock never recovered. In the second quarter of 2024, nearly 84 million streaming households were actively using a Roku device, an annual increase of 14%. Additionally, the 30 billion streaming hours increased usage by 20%, indicating users were spending more time on Roku’s platform.
Additionally, Roku remains the most popular TV operating system in the US, Canada and Mexico. Roku unit sales are also higher than those of the company’s next two competitors combined. Such signals should be bullish for the stock.
The frustration among Roku shareholders likely lies in average revenue per user (ARPU). Despite higher usage by more people, ARPU over the last twelve months was $40.68, which represents virtually no change from year-ago levels.
Roku explained this by elaborating on its moves into international markets. In many of these places, monetization is still in its early stages, meaning the added subscribers aren’t yet generating significant revenue for Roku.
Roku tries to combat this through advertising. The company said advertising revenue growth outpaced the overall advertising market, excluding media and entertainment. Roku also praised its partnership with The Trade Bureauwhich allows advertisers to better interpret and optimize ad campaigns based on Roku’s data.
Nevertheless, such improvements don’t appear to have worked quickly enough for Roku’s investors. With the stock up just 10% in the past year, investors may rightly wonder when this expected recovery will finally occur.
Roku’s financial results
Still, despite the problems, Roku’s overall financials have improved. Revenue in the first half of 2024 was $1.85 billion, up 16% compared to the same period in 2023. The fastest growth came from device revenue at 29%, but platform revenue, the largest share of the company’s turnover still increased by 15%. %.
Additionally, Roku managed to reduce its operating costs by 9%. This significantly reduced losses, which fell to $85 million in the first two quarters of 2024, a vast improvement from the $301 million loss in the same period last year.
Furthermore, free cash flow was almost $69 million, showing that the obstacle to profitability was the $183 million in stock-based compensation costs.
Such challenges have made Roku a cheap stock. While the losses leave the stock short of a price-to-earnings ratio, its price-to-sales ratio (P/S) remains below 3. This is well below the sales multiple at the height of the 2021 bull market, when Roku briefly traded above 30 times sold. sale.
While shareholders shouldn’t expect a return to that valuation, it shows how much Roku could rise if it regains investor confidence.
Consider Roku stock
Ultimately, despite the massive decline in Roku stock and the years of stagnation, a sustainable stock recovery could finally come soon.
Roku continues to attract more users who spend more time on its platform. It also continues to build relationships that should grow revenue as Roku continues to make more money from its advertising platform both in the US and internationally. Admittedly, the lack of ARPU growth and continued losses remain a frustration. However, as the company makes efforts to generate revenue in international markets, ARPU should increase over time.
Additionally, Roku’s rising popularity has boosted revenues. With continued improvements, the company could quickly become profitable, which gives investors all the more reason to put their faith in Roku stock again.
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Will Healy has positions at Roku and The Trade Desk. The Motley Fool holds and recommends positions in Roku and The Trade Desk. The Motley Fool has a disclosure policy.
1 Growth Stock Down 85% to Buy Right Now was originally published by The Motley Fool
