Why Roku Went Ballistic
Roku has had a year to remember and the party isn’t over yet after a tech analyst issued another upgrade.
This company was one of my picks to knock it out of the park this year and it has delivered in full force.
The premise behind the upgrade was that Roku (ROKU) could have 82 million active accounts by 2025 as it expands internationally.
What does Roku do?
Roku is a leader in advertising-supported video-on-demand streaming services. It does this by running commercials on its Roku Channel and other channels.
A minor part of their business is involved in making set-top boxes and streaming sticks to access internet video services such as Netflix and Hulu. Plus, it licenses an operating system to makers of smart TVs.
Roku currently relies on the U.S. market totaling 30.5 million active accounts, up 1.4 million from the prior quarter.
As the analyst reemphasized his outperform rating on Roku stock, the stock levitated, and this morning crossed the intraday level of $146 and finished the day over $147.
Roku's international growth could echo Netflix.
The company has been tagged to experience the same type of uber-growth that Netflix experienced as it went global.
If Roku can accumulate 82 million active accounts by 2025, it should have $4.5 billion in annual platform revenue.
This would make Roku's market capitalization around $40 billion to $50 billion in 2025. Its current market value is about $16.5 billion.
Operational superiority filters into the financial results with Roku expanding revenue to $250 million, up 59% year over year.
Roku posted a loss per share of $0.08, both metrics were better than analysts' consensus estimates.
Roku distributes content from a powerful list of streaming providers providing both paid and free ad-supported options. This allows the company to collect not only a piece of each paid subscription on its platform but also benefits from a growing advertising base.
Unless the government bans digital ads, Roku is poised to harvest the lion’s share of the spoils for the streaming revolution.
The unfortunate side to Roku’s stardom is the herculean task of trading a stock that moves up and down in dramatic fashion.
If the stock ever exhausts back to the $100 level, buy and hold long term.
If you try to trade this beast, your positions will get roughed around on the massive swings in the price action.
A great company deserves its plaudits and Roku positioned itself as the tech company in the right place and the right time in 2019.
