Roku Inc (ROKU) Stock Is Set for Explosive Future Growth

Advertisement

Recently IPO-ed TV streaming company, Roku Inc (NASDAQ:ROKU), was founded by consumer tech royalty, Anthony Wood, who invented DVR. Though the tides of tech trends are swift, Wood was able to parlay his experience in creating a company in the same space that has a better chance of outlasting his earlier venture.

roku stock
Source: Shutterstock

ROKU is pioneering a new generation of content viewing out of its Los Gatos headquarters.

The post-IPO pop has sent shares soaring 47%. For those concerned that shares will follow in the way of Snap Inc (NYSE:SNAP), I would argue that given ROKU’s growth trajectory and ability to execute, it is far less likely to lose steam so dramatically. After all, it has a solid underlying business not as reliant on the whims of young social media users.

The Momentum Behind ROKU

Just yesterday, ROKU announced OS 8.

Beginning this month, Roku OS 8 will be rolling out to Roku players with a software update that will make its way to all Roku devices by the end of the year. With the additional scrutiny of the public markets, Roku is showing that its innovative initiatives are on point.

OS 8 will enhance the user’s streaming experience through a number of upgraded features. There is now a smart guide, a quick launch via voice-activated command, voice controls for input changes and tuning and over-the-air content search capabilities. A more satisfied user is not only a source of recurring revenue but also invaluable for word-of-mouth and appeal to advertisers.

ROKU’s Tailwinds

ROKU is operating in an attractive industry with multiple tailwinds, not least of which is the advertising chase for platforms that truly deliver a valuable product to a large and engaged user base.

What we have is high double-digit growth in all the relevant metrics: 43% in active accounts, 60% increase in quarterly streaming hours, and 35% increase in ARPU.

ROKU already has over 15 million active accounts with high-powered growth that doesn’t seem like it will abate. There is always room to improve the user experience especially via wider content offerings and tailored payment options. Plus, international expansion is still in the very early stages of contributing to active accounts growth. This is a strategy that ROKU has at the forefront of its mind.

Hours streamed have also been growing by leaps and bounds over the past five years from less than one billion in 2012 to almost 12 billion in the trailing twelve months. In the six months ended June 30, 2017, hours streamed grew 76% year-over-year from the six months ended June 30, 2016. The numbers lend credibility to management’s ability deliver results.

Monetization

As a function of the user base growing, becoming more engaged and streaming an increasing number of hours, average revenue per user will increase as well. Advertising-based content is its fastest growing segment, and there is no doubt in my mind that ROKU will be expanding its sales team. This means more advertisers and better monetization of the user base.

ROKU’s dedicated data and analytics team are well-positioned to deliver relevant advertising and ensure that advertisers are able to reach their campaign goals. This conflation of growth in hours streamed and ad dollars, coupled with the momentum in the video streaming space for companies that can truly engage and hang onto viewers, leaves lots of runway ahead for ROKU’s stock. The recent pop is just the beginning.

As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/roku-set-future-growth/.

©2024 InvestorPlace Media, LLC