Roku (NASDAQ:ROKU) has rebounded nicely in 2023, with ROKU stock up more than 85% year-to-date. If you bought shares of the streaming platform’s initial public offering in September 2017 at $14, you’d have a compound annual growth rate of 32.3%.
If you’re a glass-half-full person, you’re delighted with your returns to date. If you’re more of a negative type, you’re probably displeased that you didn’t sell in July 2021 when it hit an all-time high of $490.76.
While it’s unlikely to revisit the high $400s anytime soon, its business is doing enough right that I could see it doubling again in 2024 to $150 or higher. Of course, if a recession kicks in, all bets are off.
Here’s why I like it.
Roku Channel Continues to Grow Content and Viewership
On Aug. 15, Roku announced its expanded partnership with NBCUniversal’s Global Distribution Studio. The move sees the Roku Channel add several Global Distribution Studio Entertainment Channels, including Murder, She Wrote, Little House on the Prairie, and Universal Crime, which includes several crime series such as The Rockford Files and Columbo.
Later in 2023, Roku will launch other channels, including Universal Action, with golden oldies such as Magnum P.I. and The A-Team.
“This is an expansion of NBCU’s existing FAST relationship with Roku, which currently includes NBC News Now, Dateline 24/7, Today All Day, LX, NBC local channels, Telemundo regional news channels, Sky News International, and The Rotten Tomatoes Channel, as well as a broadening of NBCU Global Distribution’s relationship with Roku, beyond the licensing of films, TV series, and Telemundo programming,” stated the Aug. 15 press release.
Free ad-supported streaming TV (FAST) has become one of the fastest-growing segments of the TV-viewing marketplace. In its Q2 2023 shareholder letter, the company pointed out that the Roku Channel accounted for 1.1% of total U.S. TV viewing in May, equal to Peacock and close to HBO Max.
Ad Revenue Is Down But Not Out
Two things could happen if the U.S. entered a recession that would be good for Roku and the Roku Channel.
First, it is building one of the top FAST lineups of live, linear TV channels, with over 350 on its platform. As finances get tight, cord-cutters will move to FAST viewing to save money.
Secondly, consumer brands won’t completely abandon their advertising strategies during a recession because it will allow brands to maintain and grow market share relative to competitors, cutting ad spending. Further, given the tighter wallets, a brand can get more ads for less during a recession, helping to convert TV viewers to new customers.
The company’s Platform revenue in the second quarter was $743.8 million, 11% higher than a year earlier. This revenue consists of digital advertising from the Roku Channel and revenue share agreements from premium subscriptions, etc.
Most importantly, its active accounts were 73.5 million, 16% higher, while its streaming hours increased by 21% to 25.1 billion. You want these two numbers always moving higher year-over-year.
Meanwhile, you can’t control the advertising market, so the 7% decline in average revenue per user, to $40.67, is much less significant than active accounts and streaming hours.
Who knows when the ad market will return to sequential and YOY growth? The only thing we do know is that it always does.
The Bottom Line on ROKU Stock
ROKU stock trades at 3.1x sales, its lowest multiple since going public. Yet, its revenues are more than $3.2 billion for the trailing 12 months ended June 30, 6x its revenue when it went public.
The company reported a 2022 adjusted EBITDA loss of $84.2 million in February. It expects to generate a positive amount in 2024, with further improvements.
It needs to continue to focus on controlling expenses. The revenues will come.
If you like to dabble in options, I like the June 21/2024 $100 put. Sell one of those bad boys for an annualized yield of 60.0% — bid price of $30.85 divided by $73.55 share price multiplied by 365 days divided by 255 days to expiration — and should it rise in price to $100 by next June, you’ll have $3,085 in your pocket. If it stays below $100, your net price will be $69.15, below where it’s currently trading.
Either way, I like Roku’s future.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
