What happened
Shares of streaming media platform maker Roku (ROKU +2.91%) gained 337% in 2019, according to data from S&P Global Market Intelligence. I was about to say that it was the biggest winner of the year among the stocks that make up the S&P 500 index, but that would actually be Advanced Micro Devices and its 148% gain. You see, Roku is not a member of that well-known market barometer quite yet.
So what
Roku achieved this stunning one-year return by delivering a relentless barrage of muscular earnings reports. The company crushed Wall Street's consensus estimates in each of the four quarterly reports that were published last year, sometimes by a very large margin. For example, the second-quarter report's revenues came in 12% above analyst expectations and the adjusted net loss stopped at $0.08 per share while the Street consensus had pointed to a loss of $0.22 per share. The stock skyrocketed 22% higher the next day alone.
Image source: Getty Images.
Now what
Roku's focus shift from capital-intensive set-top boxes to higher-margin media software is paying dividends by the boatload. In the latest available earnings report, the company's revenues rose 50% year over year to $261 million thanks to a 36% increase in active user accounts and 30% higher average revenues per user. Earnings were negative but that's only to be expected from a relatively small company attacking a massive global market -- every last penny of available assets is being poured into accelerating Roku's top-line growth for now, and the profits will simply have to come later. The company is following the same growth-optimized business template as streaming-media producer Netflix, which makes perfect sense since Roku was founded by current CEO Anthony Wood, a former Netflix executive. Netflix sets a fantastic example but is also a tough act to follow. As role models go, Roku could absolutely have done worse.
Oh, and I fully expect Roku to join the S&P 500 the next time the index makes room for some fresh blood. Next time, I'll find this ticker on my regular market-index screens.
