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The stock market has been in an unusual situation since the beginning of last year. All major market indexes have entered bull market territory, rising more than 20% from their respective lows and hitting new all-time highs. However, not all stocks participate equally.take Roku (Roku -0.39%), for example. The streaming pioneer is up about 59% since the beginning of last year, but is still 86% away from its peak.
But when you consider the evidence, you’ll see that there are plenty of reasons to like Roku, despite its spectacular downfall. Let’s take a look at three reasons why investors should buy Roku stock like there’s no tomorrow.
Image source: Getty Images.
1. Powerful and improved user metrics
Even as the economic downturn weighed on Roku’s stock price, one thing that never wavered was the company’s resilience. In the fourth quarter, Roku reported a 14% year-over-year increase in sales, marking his third straight quarter of consecutive growth. Additionally, the company’s cost-cutting campaign continues to bear fruit, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and free cash flow positive last year. Management said these milestones were achieved “ahead of schedule.”
But what really stood out was Roku’s user metrics. Roku added 10 million active accounts this year, increasing the total by 14% to 80 million. Viewing hours similarly skyrocketed, increasing 21% to 29.1 billion hours. That means Roku users are watching nearly 4 hours of programming per day, and this number has also increased by 21%. By contrast, viewing on traditional broadcast TV was down 16% year-over-year. Nielsen.
Despite the stock price slump, Roku’s audience is growing and interest in its platform is growing.
2. Market-leading scale
When it comes to streaming platform providers, nothing comes close to Roku. Roku has a 55% share of the connected TV (CTV) advertising market in North America, according to CTV analytics provider Pixalate. Roku also leads in Latin America with 45% market share, but lags in Europe, Middle East, and Africa (EMEA) at 23%. Amazon Fire TV has 30% and Samsung 24%.
Roku is an industry leader and is perfectly positioned to attract viewers who have ditched cable TV, a trend that is accelerating every year. Major pay-TV providers lost more than 5 million subscribers in 2023, up from 4.6 million in 2022, according to data compiled by Leichtman Research Group. Additionally, fewer than 46% of U.S. households subscribed to cable TV last year, and that number is expected to fall below 35% by 2027, according to Insider Intelligence.
The company’s focus on being the best streaming media outlet means Roku can avoid the massive content spending that currently weighs down each major streaming service. Additionally, the trend toward ad-supported streaming services is a boon, with streaming channels that display ads on Roku gaining the right to fill 30% of their ad inventory and collect 100% of their revenue from that portion. It is working on That platform.
3. Digital advertising recovery
The past few years have been difficult for advertisers, as marketing budgets are among the first to be cut during times of economic uncertainty. The good news is that digital advertising is finally making a comeback, and its growth is likely to accelerate further in 2024. More importantly, programmatic ad spending, including CTV, is expected to grow three times faster than non-programmatic ad spending this year, increasing approximately. 16%. As the leading provider of CTV advertising in the US, Roku is well positioned to benefit from this trend.
It is worth noting that the majority of Roku’s revenue, approximately 86%, comes from its platform division, which primarily consists of digital ads displayed on the platform. Additionally, Roku collects all of its advertising revenue from its in-house streaming channel, The Roku Channel, which has become a top 10 streaming channel in the United States.
Why it’s a bonus: great underground prices
The uncertainty of the past few years has weighed on Roku stock. However, experienced investors know that business performance and stock price do not always correspond. That seems to be the case with Roku. As a result, Roku stock is selling for just twice its future sales estimates, the very definition of an undervalued stock.
Roku’s solid user metrics, market-leading position, and ultra-cheap valuation, coupled with the continued recovery in the digital advertising market, make a compelling case for investors to buy Roku stock like there’s no tomorrow. generates some discussion.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Danny Vena has positions at Amazon and Roku. The Motley Fool has positions in and recommends Amazon and Roku. The Motley Fool has a disclosure policy.
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