Roku (NASDAQ:ROKU) has done phenomenally well in 2020. Shares of the streaming TV (CTV) platform are up over 130% this year, outperforming the Nasdaq and S&P 500. The platform has seen a big bump in usage due to COVID-19 stay-at-home measures, and investors are being rewarded for it.

But with this sky-high valuation -- Roku trades at a price-to-sales ratio of 25 -- the company needs to find new ways to make money off of its platform. One question investors should be asking themselves is whether it has leverage over the video services that use it for distribution. Let's see if that is in fact the case.

Hand on TV remote.

Image source: Getty Images.

The evidence is clear

Last quarter, Roku had 46 million active accounts, up 43% from a year ago, and had 14.8 billion hours streamed on its platform, up 54%. These high double-digit growth rates show how fast the company is becoming essential to CTV. In fact, Roku now has an estimated 49% of the streaming device market, beating out Chromecast, Amazon Fire TV, and Apple TV.

Disney (NYSE:DIS) has worked extensively with Roku to help boost its Disney+ offering by buying a button on tens of millions of remote controls (allowing one-click access to the service), using the platform's targeting capabilities to find potential customers, and promoting the service on Roku's home screen. This choice, among other things, is likely a reason Disney+ was able to get 86.8 million subscribers one year after its launch.

Contrast that to HBO Max, Warner Media's new flagship streaming service that launched in May of this year, that only just reached a deal with Roku this week. This is likely a big reason why the service has been used by 8.6 million people even though 28.7 million people pay for or have access to it. 

What is Roku's endgame?

While Roku may not be essential to companies like Netflix (NASDAQ:NFLX) or YouTube (which runs ads through Google's in-house network), it is becoming a necessary partner for media companies transitioning to CTV. As content viewing slowly migrates from cable to internet-connected platforms, and hours streamed on Roku continue to grow, new streaming services will need Roku's promotional tools to compete with the Netflixes and Amazon Primes of the world.

For example, let's say that in the future Major League Baseball decided to go direct-to-consumer with a $10 a month subscription service, bypassing its traditional partners. If the product was going to have any chance of success, it would need to be:

  1. Available on Roku, with the ability to subscribe directly from a user's TV (of which Roku would get a cut).
  2. Promoted on the Roku home screen, using the company's ad targeting capabilities. 
  3. Advertised on ad-supported streaming services, which, depending on the service, Roku would get a piece of.

This is a hypothetical situation, but it is what HBO Max, Peacock, FuboTV (NYSE:FUBO), and others will end up doing at some point, even if executives don't realize it yet. Either that or their streaming services will have a higher chance of flopping.

While all of this should have anyone invested in Roku excited about what the future holds, the company may be lacking a moat, at least compared to the old-school cable distributors. Unlike Comcast (NASDAQ:CMCSA), which used to be a consumer's only option for getting access to the cable bundle, consumers can access HBO Max a dozen different ways. This may limit the leverage Roku can get with content creators.

Two numbers for Roku that investors need to track are Active Accounts and Total Streaming Hours. Both are an indirect measure of the competitive advantage the company has over the video services on its platform, and will hopefully translate to higher average revenue per user in the long run. If not, or if growth in accounts and streaming hours begin to stagnate while the entire CTV market continues to grow, Roku may not have as much leverage as previously assumed.