It’s been an eventful 2019 for Roku (NASDAQ:ROKU) with the stock currently higher by 93% on a year-to-date basis. Yet ROKU stock has sharply pulled back in recent weeks, down from the $170 highs to current levels of $132, helped on Tuesday by news that Apple TV will be available on its streaming platform.
Amidst near-term volatility, I am bullish on Roku stock and I believe that there is potential for the stock to trend above previous highs of $170. In my view, this is likely within a time horizon of 12-18 months.
This coverage will discuss the factors for my bullish view. The focus of the coverage will be on the company’s leading position in the U.S. and the prospects of growth through international expansion.
Clear U.S. Market Leader
Before looking at data that establishes the fact that Roku is a leader in streaming TV platform, the best sellers in televisions on Amazon provides key insights. The top seven televisions in the best seller category use Roku streaming TV platform. This is the level of dominance the company has in the United States.
This is further confirmed by the fact that Roku’s streaming TV platform accounted for more than 30% of US sales of connected TV devices in Q1 2019.
The company has left behind the likes of Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) by a big margin.
The news that Apple TV and Apple TV+ will be available on ROKU platform yesterday boosted the stock almost 12. Therefore, there is little doubt that Roku is a market leader and is likely to remain ahead of peers.
This point from the company’s Q2 2019 report talks about the potential growth ahead:
“Approximately 3.5 million U.S. TV households cut the cord from March 2018 to February of 2019, moving from traditional pay TV to streaming.”
That’s a trend that is likely to continue and implies steady growth for Roku.
International Expansion Will Trigger Upside
While Roku continues to dominate in the U.S., further growth is critical. From this perspective, the potential positive impact on the Roku stock price from international markets expansion cannot be overstated.
Roku CEO Anthony Wood is targeting to have the company’s streaming products on 50% of televisions worldwide. While that’s a long-term goal, it is clear that Roku is not limited to the U.S.
In a first launch outside North America, Roku will be available in the U.K. on Hisense’s newest sets. The company is also planning to make inroads into Brazil as a part of their global expansion.
The bottom-line is that the next 12-24 months can be exciting for Roku in terms of their global expansion. This will also keep investors interested in the shares with the company targeting a much bigger addressable market.
Steady Growth In ARPU
It is interesting to note that the company’s average revenue per user was $16.60 in Q2 2018 and it increased to $21.06 in Q2 2019, a 27% year-on-year ARPU improvement.
One of the key factors that has driven growth in ARPU is advertising revenue. According to eMarketer, advertising revenue will accelerate by 47.3% between 2019 and 2020.
The important point to note here is that advertising revenue has increased in-sync with an increase in streaming hours. With the world moving toward streaming content, Roku’s global expansion plans show immense growth potential.
Final Thoughts on Roku Stock
Roku stock has corrected sharply in recent weeks, yesterday’s move notwithstanding. Still year-to-date 2019 has been a stellar year in terms of stock upside.
ROKU stock is likely to consolidate after the big rally and I believe that the next leg of upside will be driven by international expansion plans. Growth in the international markets is likely to gain traction in 2020 and beyond.
Steady growth in ARPU has been a big positive and it indicates the company’s increasing capability on user monetization.
At current levels, the stock is worth accumulating, but I would consider gradual exposure than a big plunge.
As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.
