Roku (NASDAQ:ROKU) stock has given investors an eventful, though highly profitable, ride in 2019. There was the September decline that, by the strictest definition of the term, put ROKU into a bear market. Fortunately, the shares have rebounded in significant fashion off their September lows and have given investors a better than five-fold gain for the year.
Any stock that rises 423% in the span of 11 months, as Roku stock has done, should be approached with caution. When it comes to ROKU, there will inevitably be conversations about valuation (yes, ROKU is pricey), how much more the shares can rise and increasing competition in the streaming hardware market.
Those are all relevant points, but ROKU is already defying valuation concerns because the shares have been expensive for essentially all of this year and yet ROKU stock price keeps climbing. As for competition, that’s always going to be a concern, but Roku enjoys enviable positioning in the streaming TV device market.
In the first quarter of this year, Roku accounted for 30% of all streaming device sales, besting the next closest competitor by a wide margin. That rival was Amazon’s (NASDAQ:AMZN) Amazon Fire with 12% of sales.
“By the end of 2019 more than 52 million Roku-powered devices will be in use, accounting for 18% of all connected media devices,” according to TeleCompetitor.
Why ROKU’s Device Sales Could Accelerate
Roku is likely to benefit from an imminent uptick in the sales of its hardware. That’s because, starting Dec. 1, Netflix (NASDAQ: NFLX) will no longer be supported on multiple Roku devices, according to BGR.
Of course, Netflix has competition issues of its own to worry about, but recent channel checks suggest streaming alternatives from Walt Disney (NYSE: DIS) and Apple (NASDAQ:AAPL) aren’t yet denting Netflix’s subscriber base. Combine that with Roku’s mostly solid customer satisfaction rankings, and it seems as though Roku stock could be a potential beneficiary of modestly increased product sales, thanks to Netflix. Analysts see other factors lifting Roku stock.
“We believe connected TV (CTV) device usage and advertising growth will continue to rise exponentially, and Roku is in prime position to both drive and harness this,” wrote Macquarie analyst Tim Nollen in a recent note to the firm’s clients.
Meanwhile, the company’s ability to navigate markets outside of the U.S. and execute in those markets could prove critical to the long-term success of Roku stock.
“The company is much less well-known outside of the U.S., and in order to succeed on the international stage it will need to face down the twin challenge of building brand awareness and drawing users away from well-established players such as Amazon, Apple and Google,” said David Watkins, director at Strategy Analytics, in a report released earlier this year.
ROKU is taking steps to bolster its international footprint. In September, the company said it’s expanding its Roku TV licensing program into Europe. ROKU expects its Hisense Roku TV models to be available in the U.K. by the end of the year.
The Bottom Line on ROKU
Roku stock is a growth name, which is stating the obvious. but its primary market, Over the Top (OTT) services i.e internet TV, is experiencing exponential growth.
The OTT services market “valued (at) approximately USD 912.4 billion in 2016 is anticipated to grow with a healthy (average annual) growth rate of more than 16.6% over the forecast period 2017-2025,” according to Kenneth Research. “Key factors which gives growth to the Over the top services market are the demand for OTT services is poised to rise exponentially in the coming years,” the firm added.
By 2025, the global OTT market could reach $332.52 billion, potentially providing a major boost to Roku stock as the company solidifies its lead in the U.S. and expands into faster-growing markets in other regions.
Roku stock isn’t a growth at a reasonable price name, but for risk-tolerant investors, it is growth worth paying up for.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
