Roku (NASDAQ:ROKU) has seen its shares slide in 2021. However, a recovery and return to growth for ROKU stock is likely. The company’s move to keep people watching Roku Channel by investing in original content is the latest example of the company maximizing the monetization of its platform and huge user base.
Video streaming is turning into one of the key technological, entertainment and consumer trends of the past decade. It’s only going to become bigger in coming years. Roku was there at the start, long before most of the current big names. What investors need to decide is whether Roku’s massive platform lead — made possible by that early presence — is going to continue, and pay off with sustained profitability.
This “B-rated” Portfolio Grader stock has plenty of growth potential, if it can continue to leverage its lead to outmaneuver the bigger players.
Roku’s Early Entry and Platform Approach Gives It Massive Reach
Plenty of companies have rushed to join the video streaming market over the past several years. Tech companies. Media companies. Entertainment companies. Most of them are huge.
Roku has a market capitalization of over $47 billion, so it’s not exactly a small company. However, compared to the competition, this really is a David and Goliath story. However, Roku has a key advantage. The company was a very early player in the video streaming market. The company started with set-top streaming boxes. Its first was released in 2008, and Roku has continued to put out new streaming hardware that can be connected to any TV (or computer monitor) to support video streaming services.
In 2015, Roku made a big move to add to its ownership of the living room. The company began licensing its software to TV manufacturers. This dramatically expanded Roku’s presence. It was now a platform.
Selling advertising and licensing its software was becoming increasingly lucrative. In 2018 Roku announced for the first time that digital revenue exceeded hardware sales. ROKU stock ended 2018 near the $30 level.
In February, the company release its Q4 and full-year 2020 numbers and they reflected the success of the platform strategy. Total revenue for the year was up 58% compared to 2019, led by platform revenue which increased 71%. How big is Roku’s footprint in the U.S.? The company put it this way: “To put our scale in perspective, Roku’s U.S. active account base is now more than twice the number of the U.S. video subscribers of the biggest cable company.”
The Roku Channel: A Shift to Original Content
Roku is beginning another major strategy shift. The company is following other streaming platforms in a move to original content. However, it’s doing so to make its platform stronger — not to go head-to-head with a big video streaming service.
In January, it purchased the content library of failed streaming startup Quibi, with plans to show that content on its Roku Channel. That channel has an estimated reach of 61.8 million U.S. viewers in the fourth quarter. Adding free, ad-supported original content is seen as a key to continuing to grow the company’s digital ad revenue.
Original content is expensive (no word on what Roku paid for those Quibi shows), but the move shows the company continues to evolve its strategy. And it also shows its determination to drive more ad revenue from the Roku Channel, which is available for free on every Roku streamer and Roku-powered TV. To see the potential growth for ROKU stock, look no further than the Roku Channel and its ever-expanding footprint.
Bottom Line on ROKU Stock
Not all investment analysts are enthralled by Roku’s prospects. There are even a few who suggest selling your shares. However, the general attitude is one of optimism. Roku may lack the resources of consumer electronics and media giants that run video streaming services, but the company was a video streaming pioneer. It has leveraged that into an impressive hardware and streaming platform leadership.
With moves like buying up original content for the Roku Channel, it’s clear that Roku has no intention on sitting still. It’s aggressively leveraging that installed platform lead.
The Wall Street Journal is tracking 29 analysts with coverage of ROKU stock. They have a consensus “Overweight” rating for ROKU with an average $483.94 price target. That’s about 30% upside. ROKU has rallied over the past two weeks, but has yet to fully recover from the impact of the tech sector selloff. It’s still down over 20% from its 2021 (and all-time) high close of $469.70 in February.
If you’ve been sitting on the fence about adding ROKU stock to your portfolio, this dip is probably the time to make a move.
On the date of publication, Louis Navellier had a long position in ROKU. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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