Once a pandemic darling that made its investors rich, Roku (NASDAQ: ROKU) has come crashing back down to earth. Shares are trading 88% below their all-time high, reached in July 2021.
But don’t let that distract you from the real business. This leading streaming platform has a number of positive attributes that investors should know and appreciate.
Here are three reasons to buy Roku like there’s no tomorrow. That’s on top of the fact that the stock is trading at a low price-to-sales ratio.
Key Statistics
The first reason to buy shares comes from the strong performance indicators. In the first three months of 2024, the company reported 19% year-over-year revenue growth. And this was after sales rose 11% in 2023.
Moreover, the user base continues to expand. As of March 31, Roku had 81.6 million active accounts. That figure was still 80 million at the end of last year. And it represented an impressive 14% increase compared to the first quarter of 2023. This extensive reach gives Roku the largest share of the smart TV market in North America.
Engagement shows no signs of slowing down. In Q1, a whopping 30.8 billion hours of content were watched on the Roku platform. That number has continued to climb steadily with each passing quarter.
One area that may concern investors is Roku’s monetization trends. Average revenue per user in the first quarter was $40.65. Although this was lower than six months ago, it appears to be stabilizing.
Position of the industry
It’s been interesting to watch the changing media landscape over the last few years. From an investor’s perspective, it can be confusing to try to understand what’s happening. The good news, however, is that Roku appears to be well-positioned in the industry.
It is benefiting from the cord-cutting trend as consumers ditch their traditional cable TV packages and switch completely to streaming. In the US, less than half of all households still have a cable subscription. And the percentage is expected to continue to decline in the future.
Given the multitude of streaming services available, having a single user interface that combines these content offerings dramatically improves the viewing experience. This is where Roku’s value proposition speaks for itself.
Roku is able to grow its business thanks to the billions of dollars spent by content companies like Netflix And Walt DisneyBy aiming for an agnostic platform that offers broad distribution capabilities to content providers, Roku can capitalize on the rise of streaming, with more accounts being created over time.
Advertising market
Rapidly rising interest rates in 2022 dampened the outlook for the economy. This resulted in marketing managers cutting back on advertising budgets in anticipation of a recession and pressure on consumer spending. But this did not become reality.
Roku’s platforms segment, which enters into advertising revenue deals with its content partners, saw revenue grow 19% in Q1 to $755 million, representing 86% of the company’s total. This double-digit growth is very encouraging to see.
“Year-over-year video ad growth on the Roku platform outperformed both the overall ad market and the traditional linear TV ad market in the U.S.,” Roku’s CEO and CFO wrote in the Q1 2024 shareholder letter .
Over time, there’s a huge opportunity for Roku to become an even bigger force. Consumers are spending more and more time watching streaming services. With increasing advertising revenue flowing from traditional cable TV, it appears Roku will remain a major beneficiary. And this supports the prospects of solid sales growth.
Should You Invest $1,000 in Roku Now?
Before you buy shares in Roku, here are some things to consider:
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix, Roku and Walt Disney. The Motley Fool has a disclosure policy.
3 Reasons to Buy Roku Stock Like There’s No Tomorrow was originally published by The Motley Fool
