Roku (NASDAQ:ROKU), the streaming hardware company, has never been priced based on fundamentals. Roku stock entered trade Nov. 3 at $207, a market cap of $25.8 billion, on trailing year revenue of $1.12 billion.

We don’t need to talk earnings because there aren’t any.

Instead, there’s growth, which could be 42% year over year when it reports November 5. Revenues were $261 million in the third quarter of 2019. They’re expected to be $371 million (with another loss) this time.

But even growth doesn’t explain the rise of Roku stock. It is, as I wrote last year, the most attractive take-out target in the streaming universe.

The question is, has it missed its window?

The Good News for Roku Stock

Roku has two revenue streams. It sells streaming sticks and other products, like TVs and sound bars, embedded with its software. Then there is platform revenue, mainly advertising, but also royalties on streaming subscription sales.

When analysts look at the second quarter report, they like what they see. Platform revenue is more than two-thirds of the total. In the second quarter this segment had 46% year-over-year growth.

Gross profits on that are lower than for the hardware, just 26%. But margins are still over 50% despite increased management costs.

Management costs mean software, which was recently updated. OneView leverages data about who is watching to manage advertising on TV, PC and mobile. OneView is the result of Roku buying an adtech company called Dataxu last year for $150 million.

But there remains work to do, as John Donahue of WLxJS, a media consultancy, explained recently. OneView doesn’t integrate with The Trade Desk (NASDAQ:TTD) or Jellyfish’ DV360.

There are legacy requirements in the Dataxu software that Roku must continue to support.

Roku doesn’t just compete with other TV platforms, even other streaming platforms. It competes with Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOGL). They’re the sharks. It’s the minnow.

The Clouds Coming

Those two Cloud Czars represent the other threat to Roku stock. The window for it to sell, and give shareholders their big payday, may be closing.

Already the Czars have chosen to go their own way. Google, Amazon.com (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) all have their own streaming platforms.

Facebook is avoiding TV, and Microsoft (NASDAQ:MSFT) is mostly a business-to-business company.

That leaves players like AT&T (NYSE:T), Comcast (NASDAQ:CMCSA) and Walt Disney (NYSE:DIS). (Roku is already worth almost $8 billion more than ViacomCBS (NASDAQ:VIAC).

The cable powers have the firepower to pay the $40 billion Roku would cost with stock. But as Roku scales, the dilution looks harder to justify. Roku shares have risen 50% so far in 2020. There are other ad managers out there.

Of the three Comcast seems the most likely, having launched its Peacock app on Roku recently. (Amazon is still resisting Peacock.) The move followed long negotiations over control of user data and sharing of ad inventory.

The dispute illustrates Roku’s problem. Roku is, in the end, mainly an advertising platform. It needs cooperation from streamers to justify its stock price. It treats TV ads the way Facebook treats ads on Instagram.

The Bottom Line

TV analyst Jim Cramer still likes Roku.  In addition to ads, he likes the streaming royalty revenue.

Other analysts are getting nervous. The average price target on Tipranks is $190/share.  That’s lower than it’s at now. Bloggers (that’s what Tipranks calls yours truly) are generally more bullish.

Our Chris Markoch is one of the bears. He questions the ad growth story in a world dominated by the Cloud Czars.

I’m more worried about the valuation of Roku stock relative to potential acquirers. Management still sees growth ahead, but it could miss its best acquisition window.

If you buy Roku, that’s still your payout. You wouldn’t be paying 20 times revenue otherwise.

At the time of publication, Dana Blankenhorn had long positions in AMZN, MSFT and AAPL.

Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.