When we think of promising growth stocks, the name Roku often comes up, especially now that the stock price has plummeted 85% from its highs. As investors rummage through the pieces of what was once a pandemic-era tech darling, there's a sense of intrigue around whether a turnaround could be on the horizon for Roku, and here’s why.
Roku has fundamentally remained strong with an ever-growing user base. Reporting nearly 84 million streaming households by the second quarter of 2024—a 14% increase from the prior year—the platform is seeing not just more users but more engagement. VIEWERS spent an impressive 30 billion hours streaming, reflecting a 20% surge in usage.
As the most favored TV operating system across key markets like the U.S., Canada, and Mexico, Roku's dominance is evident. It leads in unit sales, surpassing those of its two closest competitors combined. Despite these encouraging metrics, investors are understandably frustrated with the stagnant average revenue per user (ARPU), which hovered around $40.68 over the past year—unchanged year-over-year.
Roku's journey into international markets seems to offer a plausible explanation. In those territories, monetization is still in nascent stages, meaning increased subscribers haven't yet translated to higher revenues. Roku is tackling this through innovative advertising strategies, like its collaboration with The Trade Desk, which enhances advertisers' ability to interpret and optimize campaigns using Roku's extensive data.
Financially, Roku's recovery is already on its way. In the first six months of 2024, Roku pulled in $1.85 billion in revenue, marking a 16% rise compared to the same span in 2023. The most rapid rise was seen in device revenue at 29%, while platform revenue grew 15%. Furthermore, Roku has managed to tighten its belt, reducing operating expenses by 9%, thus dramatically shrinking losses from $301 million to $85 million year-over-year for the first two quarters.
As current shareholders reassess their positions or consider new investment in Roku, they find a stock priced quite attractively. Without a P/E due to losses, the price-to-sales ratio is now below 3—a stark contrast to its 2021 peak when it soared over 30. This suggests a promising upside if Roku can regain and solidify investor faith.
For those pondering whether to invest in Roku, the potential for a rebound is tangible. The user base is expanding, engagement metrics are climbing, and monetization is gradually improving. International growth prospects coupled with an evolving ad platform imply that ARPU could grow significantly as the company continues to refine its revenue streams globally.
In summary, while challenges persist, there's a pathway for Roku to restore its financial health and regain investor confidence. It stands as a compelling option for those seeking a growth stock with a potential comeback story. Before jumping in, assessing both the risks and the promising avenues Roku is venturing into will be key for savvy investors.
