Streaming devices and services provider Roku (ROKU) recently hit a major milestone of bringing on 90 million customers. Amid a tough environment of high inflation and elevated interest rates, this is a significant achievement for the company and is a testament to its attractiveness for consumers and advertisers alike.
Commenting on the development, founder and CEO Anthony Wood said, “Thanks to our laser focus on simplifying and enhancing the streamer’s journey, Roku is the preferred choice for millions of viewers. I’m grateful to our customers, partners, advertisers, and employees for helping us reach this notable milestone.”
The analyst community shares Wood’s optimism and expects ROKU stock to pose a turnaround. So, what is making analysts bullish about the company? Let’s find out.
About Roku Stock
Founded in 2002, Roku’s primary products include streaming players and smart TVs that provide users access to various streaming services. Additionally, Roku operates an advertising platform and offers its ad-supported streaming service, The Roku Channel. The company’s market capitalization currently stands at about $11.3 billion.
Over the past year, ROKU stock is down 11%. Its performance appears to have turned a corner in the back half of 2024, with shares up 24% over the past six months.
Steady Financials
Bears typically highlight Roku’s struggles with profitability, as the company has reported a profit in just four out of the past 15 quarters. Yet, its recent results have been encouraging on this front as 2024 saw the company narrowing its losses in each of the four quarters.
In the latest quarter, both the company’s revenue and losses surpassed Street expectations. Net revenues for the quarter came in at $1.1 billion, up 16% from the previous year aided by a 15% yearly growth in core platform revenues to $908 million. Further, losses narrowed considerably to $0.06 per share from $2.33 per share in the prior year. This marked the fourth consecutive quarter of bottom-line beat from the company.
At the end of the third quarter, streaming households inched up 13% on a year-over-year basis to 85.5 million (and have since surpassed 90 million) with streaming hours rising to 32 billion from 26.7 billion in the year-ago period. Average revenue per user (ARPU) remained almost unchanged from the prior year at $41.10.
Roku reported that cash flow from operations declined to $155.1 million from $246.9 million in the prior year. However, free cash flow rose to $157.3 million from $100.8 million in the prior year. Overall, the company’s liquidity position remained solid as it ended the quarter with a cash balance of $2.1 billion which was well over and above its short-term debt levels of $327 million.
Promising Developments
Roku is a key player in the U.S. streaming devices and services market, which is poised for strong growth. According to Precedence Research, the U.S. video streaming market is expected to grow at a compound annual rate of 20% over the next decade. This growth is driven by increasing demand from a growing subscriber base, widespread smartphone adoption, and the convenience of video-on-demand services. Roku is well-positioned to benefit from this trend.
Roku’s Data Cloud and its expanding advertising business have significantly contributed to its growth, with the company now boasting 90 million customers. Its partnership with The Trade Desk (TTD), established in April 2024, has opened new growth opportunities by enhancing the personalization and measurement of ad campaigns. This partnership has also broadened Roku’s advertiser network, attracting brands beyond the media and entertainment sectors.
Roku’s advertising business has gained further momentum with the launch of its self-service Ads Manager and AI-powered tools in September 2024. These innovations offer an integrated advertising experience, including video ad creation, interactive ads, and on-screen checkout through partnerships with companies like Instacart (CART) and Shopify (SHOP).
In the streaming TV market, Roku continues to expand its presence. According to Nielsen’s Gauge report, the Roku Channel now accounts for 1.8% of the broadcast streaming TV market, reflecting an 80 basis-point increase from the previous year. This growth highlights Roku’s ability to capture a larger share of the streaming audience.
Looking ahead, Roku is focusing on global expansion in high-growth markets such as Canada, the United Kingdom, Mexico, Brazil, and parts of Europe. The company aims to reach 100 million households by 2025, which would significantly increase its active users and platform revenue. This international growth strategy presents a strong opportunity for Roku to strengthen its user base and revenue streams worldwide.
Analyst Opinions on ROKU
Analysts remain cautiously optimistic about Roku stock, giving it an overall rating of “Moderate Buy” with a mean target price of $81.59, which denotes upside potential of about 6.4% from current levels. Out of 26 analysts covering the stock, 11 have a “Strong Buy” rating, one has a “Moderate Buy” rating, 11 have a “Hold” rating, one has a “Moderate Sell” rating and two have a “Strong Sell” rating.
