Please ensure Javascript is enabled for purposes of website accessibility

Roku Stock Is the Amazon of Streaming Video

By Rick Munarriz – Feb 21, 2020 at 9:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The leading streaming hub operator is a lot like the e-tail champ in its younger years.

Amazon.com (AMZN -0.54%) is a market darling and the country's third most valuable publicly traded company, but it wasn't always a love fest for the leading online retailer. There was a time when Amazon's growing dominance in an ascending niche was misunderstood. Bears pointing to the red ink ignored the growth, underestimating how having the pole position in a hot trend can open new doors. 

Roku (ROKU -0.52%) has a lot in common with Amazon during the years following the dot-com bubble. Roku was one of last year's biggest winners, but with the shares trading 30% below their all-time high last summer, it's fair to say that the bullish argument is being discounted right now. Investors have underestimated Roku for the past five months. If history taught us anything with Amazon, it's that you never count out the top dog in a booming industry.

A smart TV running Roku's operating system with several apps and an ad on the home screen.

Image source: Roku.

There's always something good on TV

Roku is at the heart of the streaming video experience for a growing number of homes, just as Amazon.com is the first and typically only stop on an online shopping expedition. There are 36.9 million active accounts on the platform, a 36% surge as 2019 played out. Those users are spending roughly 4 billion hours a month streaming content through Roku's platform. 

Engagement is high at Roku, just as it was with Amazon when it became the one-stop shop for all things e-tail. Folks spending more time streaming through Roku's operating system are adding up in a material way, as it generates revenue through ads placed on its application and generates referrals for leads for the thousands of services vying for your unique set of eyeballs. Average revenue per user is up 29% over the past year, growth that's stacked on top of Roku's impressive audience gains. 

The network effect made Amazon the runaway champ it is today. If a company has a product to sell, it can't afford to bypass Amazon's virtual storefront. If a merchant wants to sell its wares, it makes more sense to hop on Amazon's platform and its growing reach. Amazon has already cracked the code on fulfillment. Why compete when you can generate incremental sales through Amazon?

Roku checks all of those boxes if we bounce from e-commerce to streaming. It's the top dog in this rapidly growing market, and streaming television manufacturers are flocking to the service-agnostic platform as the default operating system on their sets. There isn't a premium or ad-supported service that can afford to ignore access to Roku's nearly 37 million hardcore streaming buffs, and since Roku offers apps willing to pay for exposure a boost, it's hard to succeed without playing right into Roku's ecosystem.

The story gets even better from here. If the network effect is potent for an established and mature Amazon, isn't it even more critical for streaming services to do everything possible to make sure that Roku succeeds? After all, this is the golden age of streaming video. As consumers shift from traditional pay TV providers, this is the magical moment to get a foot in the door. 

Roku is growing at a heady clip. It sees revenue of at least 40% this year, more than double the pace that Wall Street is targeting for Amazon. Roku will probably never join Amazon as one of just four companies with market caps north of $1 trillion, but that doesn't have to happen for Roku, with its market cap just below $15 billion, to keep trouncing the market. 

Amazon is one of the market's top stocks because it didn't squander its market leadership with a booming industry in its infancy. Psst, Roku. It's your turn.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rick Munarriz owns shares of Roku. The Motley Fool owns shares of and recommends Amazon and Roku. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$120.30 (-0.54%) $0.65
Roku Stock Quote
Roku
ROKU
$59.39 (-0.52%) $0.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
338%
 
S&P 500 Returns
108%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.