With 2019 having drawn to a close, it’s a time to reflect on some of last year’s biggest winners. Certainly, streaming equipment and service provider Roku (NASDAQ:ROKU) deserves serious consideration. With a whopping 349% return, the ROKU stock price obliterated virtually all expectations. But with so much profitability over a relatively short time, is there any room for growth in 2020?
It’s a fair question for any prospective buyer to ask. While you won’t find too many folks overly criticizing Roku stock, it’s not invulnerable. Perhaps the most conspicuous concern is that the underlying company has eschewed nearer-term earnings stability for longer-term growth. Although ROKU has been successful in expanding its footprint, its financials reflect deeper net income losses.
Of course, this is nothing new for growth names, especially in the technology industry. However, the ROKU stock price faces many new competitors in the streaming space. No longer a market dominated by Netflix (NASDAQ:NFLX) alone, entertainment giant Disney (NYSE:DIS) joined the fray. So did consumer tech behemoth Apple (NASDAQ:AAPL).
To be fair, these competitors aren’t necessarily direct ones. But their presence still clouds Roku stock in that consumers are now inundated with streaming options. Can the company stay relevant in 2020? Here are three reasons why I think it can.
Streaming Statistics Bode Well for ROKU
One of the single most impactful innovations in the broader consumer market is streaming. According to the Pew Research Center, 61% of young American adults (ages 18 to 29) prefer streaming over cable/satellite TV. Pew conducted the survey in 2017, meaning that currently, the figure should be higher today.
Moreover, Generation Z really grew up in the digitalization era. Most of them probably don’t have much recollection utilizing “physical” mechanisms for entertainment consumption, such as compact discs. Therefore, as this demo ages and enters the workforce en masse, we should expect adult streaming statistics to jump higher.
Of course, that’s not just a sole benefit for the ROKU stock price. However, the main point of mentioning these trends is that the streaming market is very robust. Furthermore, there should be more than enough room for various options. For instance, a streamer who loves Disney content may not be in the market for Netflix. Thus, competition alone isn’t a reason to ignore Roku stock.
Millennials Love Their Flexibility
For those who are bullish on streaming-related companies, demographics alone don’t drive confidence in this investment market. Rather, it’s the motivations behind the core demos that bring home the case for Roku stock.
According to video technology provider Brightcove (NASDAQ:BCOV), millennial viewers feel “far more satisfied” with streaming services than they do with broadcast or cable networks. As I mentioned above, that’s not a surprise. But one of the key factors for their satisfaction is flexibility.
With streaming services, consumers have multiple viewing options: they’re not tethered to the TV. Furthermore, ROKU’s streaming equipment devices are geared for this type of highly desired flexibility. They’re compatible with most modern TVs. As well, you can access your ROKU account through your computer or mobile device.
Plus, the company recognized the opportunity with free, advertisement-supported streaming platforms, as opposed to subscription-based streaming. In management’s view, customers will eventually reach a limit as to what they will pay for.
And this segues into my last point regarding Roku stock.
Closing the Opportunity Gap with Advertisements
Usually, free is free for a reason. With content, free usually means garbage. But with ROKU’s ad-supported platform, the company has done a remarkably good job, in my opinion. It’s actually very entertaining.
But I do see one problem with their free service: the ads stink. Specifically, they are repetitive to the point of annoyance. Plus, they’re randomly placed ads, having almost no semblance toward the products or services I desire.
However, this is also an opportunity for ROKU. As content becomes increasingly digitalized, the company can use data analytics to better target advertisements for users. For example, they can establish probable interests based on a range of demographic factors. Furthermore, I’m assuming the streaming company knows exactly what I’m watching, when I’m watching it.
In other words, their free platform is a data gold mine. By making the ad mechanisms more efficient, both viewers and advertisers will have a win-win situation on their hands. Ultimately, this should help drive Roku stock for the long haul.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
