Streaming-media technologist Roku (NASDAQ:ROKU) will look a bit different in the year 2025. We'll be halfway through what Roku's management calls the "streaming decade," and the COVID-19 pandemic of 2020 should be a fading memory.
Should investors be scared or excited about this half-decade time shift?
Let's have a look.
Winning the streaming wars in the age of cord-cutting
At the end of 2019, Roku sketched out its vision of the "streaming decade."
"While streaming became mainstream in the last decade, it is still a minority of TV viewing," management said in a written statement. "We have now entered the streaming decade when we believe consumers around the world will choose streaming as their primary way of viewing TV."
That involves an expanding ecosystem of content providers and an equally competitive market for streaming hardware and software providers, which is where you'll find Roku. By 2024, Roku's management expects that about half of the TV households in America will have cut the cord to cable TV services or never subscribed to those services in the first place.
That works out to approximately 60 million cord-cutters and never-cable households, based on Nielsen's census-based figure of 120.6 million TV homes. At the end of 2019, 83 million homes subscribed to cable or satellite services, leaving roughly 38 million subscribers on the cable-free side of the equation.
The five largest pay-TV systems lost another 2.2 million subscribers in the first quarter of 2020, led by 1.04 million exits from the AT&T (NYSE:T) services, U-Verse and DirecTV. Keep in mind that millions of Americans found themselves both working and playing from home by the end of that quarter, which should make them more interested in simple entertainment options like cable TV. They still signed off in record-breaking numbers, turning to streaming-video specialists such as Netflix (NASDAQ:NFLX) and Disney+ instead.
It's a sign of the times. Roku's vision is already materializing, and it's happening faster than anyone could have guessed before the coronavirus pandemic came along to accelerate the process.
What's Roku's next big idea?
I don't expect Roku to make any dramatic changes to its basic business recipe over the next five years. The company is an early leader in the field of purpose-built media-streaming hardware, and TV makers are turning to this company when they need to license a robust software platform for their own hardware as well.
Software licenses will serve as the next leg in Roku's long-term growth strategy. TV makers do have other options available, such as the Android TV platform from Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) or LG's WebOS system, and others insist on their own smart TV solutions. But Roku is a proven performer in this space and its user interface has been polished to a high sheen since the first Roku box was launched in support of Netflix's streaming service 12 years ago.
That polishing process will continue, widening Roku's business moat against other platforms. I wouldn't be surprised to see a few marquee brands abandon their in-house media platforms in favor of a third-party solution somewhere along the way, and Roku leads the pack in that category.
Roku's already impressive revenue growth should only accelerate as the brand becomes synonymous with media-streaming hardware. You know, the way we already "Google" something instead of doing an online search, or you talk about watching some Netflix even if you're actually reaching for a different streaming service tonight.
Whether Roku becomes the Netflix of streaming hardware or the Google of the same product category, it's a winner either way. We're watching the early years of a thrilling growth story here.