Last year was great for a lot of companies, but no other stock seemed to perform better than Roku (NASDAQ:ROKU).
CNBC recently reported that ROKU stock was the best-performing tech stock of 2019. The stock ended the year up more than 350%, although the company did experience setbacks along the way.
2019 was a volatile year for streaming services in general, as investors reacted strongly to any new competition entering the marketplace. Overall, ROKU stock is considered a moderate buy on Wall Street, although investors are divided over what the company’s future holds.
So, is the company a good investment for 2020? Here are four things to consider about Roku.
The Company Had Major Wins and Losses in 2019
In early May, ROKU stock price surged 28% after the company’s fiscal first-quarter earnings handily beat Wall Street’s expectations. The stock also jumped 25% in February after the company’s fiscal fourth-quarter earnings blew past estimates.
However, the company experienced just as many downturns in 2019. The stock fell 19% in September after a Pivotal Research analyst recommended selling the stock. And, ROKU stock fell 14% after Comcast and Facebook announced the launch of new streaming devices.
It’s hard to feel confident investing in a stock that is so vulnerable to the slightest inkling of competition.
Competition in the Streaming Market Will Grow
In some ways, increased competition in the streaming market can benefit Roku. The company sells both a streaming service and an operating system for smart TVs. This gives the company a unique advantage over other streaming providers like Netflix.
Plus, Roku TVs now account for one of every three smart TVs sold in the U.S. However, the company is facing fierce competition from Amazon’s Fire TV. Amazon reported that its Fire TV platform has over 40 million users, which is more than Roku’s 32.3 million active users.
ROKU Continues to See Success With Its Ad Business
One of Roku’s biggest strengths is its connected-TV advertising. The company has stated that advertising accounts for up to 75% of its platform revenue. The company’s ad revenue is expected to reach $1.5 billion by 2022.
The strength in Roku’s advertising business can largely be attributed to its active and engaged audience. The company’s 32.3 million users spend an average of 3.5 hours per day on the platform. All in all, Roku accounts for 44% of total streaming hours in the U.S.
Investors Are Divided When It Comes to Roku Stock
Of the 13 analysts currently reviewing ROKU stock, 10 recommend buying it. But increasingly, analysts are starting to debate what the future holds for the company.
Although the company’s gross margins have improved over the years, it is still not yet profitable. This led Thomas Hayes, the chairman of Great Hill Capital, to suggest in an email, “This is one of those cases where the stock might be getting ahead of its underlying business.”
And comments like this are not just outliers. A Morgan Stanley analyst also downgraded the stock due to certain key risks. Overall, Roku had a breakout year in 2019, but it has a lot to prove if it wasn’t to keep investors excited in 2020 and beyond.
As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.