Investing in companies enjoying long-term industry tailwinds can prove to be an extremely profitable strategy -- and both Roku (ROKU -6.53%) and Regeneron Pharmaceuticals (REGN -1.65%) seem to fit that description. While Roku is capitalizing on the shift of customers from cable TV to streaming, Regeneron's COVID-19 therapeutic should also prove to be a solid growth driver in coming months.
So far this year, shares of Roku are up more than 18% while shares of Regeneron Pharmaceuticals have tacked on more than 12%. With Roku positioned as the market-leading streaming video platform and Regeneron Pharmaceuticals making major strides in immunology and oncology, I think that both are poised for a solid growth in 2021.
Roku has witnessed exponential growth in demand for all its offerings: its hardware to support streaming, its free and ad-supported Roku Channel, its operating system for smart TVs, and its one-stop-shop platform that allows viewers to access content from a range of streaming providers. Roku's share price has also kept pace. The stock had gained more than 200% in the last 12 months.
The strong tailwinds on the customer demand, content production, and advertisement-buying fronts could push Roku's share price even higher in 2021. While consumers were switching from traditional media to streaming prior to 2020, the pace of that shift has accelerated during the pandemic. Consumers have been adopting streaming platforms for greater flexibility in picking the content they want, as well as to save money. Content producers, including the legacy media players such as WarnerMedia, which is now a part of AT&T (T -0.60%) and Fox Corporation (FOX -1.43%) (FOXA -1.41%), are actively moving to adapt to this business model. This trend can further help expand the content library on Roku's platform, a must-have in order to achieve high customer choice ratings and low platform churn rates.
Finally, with more than 51.2 million active accounts as of the end of 2020 and 58.7 billion streaming hours viewed on the platform last year, Roku's scale and reach make it attractive for advertisers. There is also an opportunity for streaming platforms to capture additional portion of the overall corporate advertising budget, considering that its viewership share is growing at a much faster pace than that of traditional media. Currently, the TV advertising opportunity in the U.S. is around $70 billion. Although according to Roku's 2020 cord-cutting study, almost one-third of U.S. households have already moved away from traditional pay TV, advertising budgets for streaming services are less than 10% of what is spent advertising on linear TV.
In the third quarter, Roku's revenues were up 73% year over year to $452 million. It consistently improved its average revenue per user (ARPU) throughout 2020, despite pandemic-related headwinds that curtailed ad spending. Its ARPU rose 20% year over year to $27 in the third quarter. Those gains, coupled with a favorable shift in revenue mix toward software sales, were key in allowing Roku to improve its adjusted EBITDA margin by 1,260 basis points to 12.4% in the third quarter. The company also boasts a healthy balance sheet with more than $1 billion in cash and total debt of $439 million.
Trading at a price-to-sales (P/S) ratio over 30, Roku is quite expensive, especially when we consider that it is just becoming profitable. However, these multiples are not too high considering that it's in a rapid expansion phase. With a dominating position in the fast-evolving streaming space, diversified revenue streams, and improving margins, I think that investors can anticipate handsome returns from Roku in 2021.
2. Regeneron Pharmaceuticals
Regeneron Pharmaceuticals continues to be a force to be reckoned with in the biotech world, thanks to its portfolio of eight FDA-approved drugs and its broad research and development pipeline. Among its treatments is a combination monoclonal antibody regimen for patients with mild-to-moderate cases of COVID-19.
Regeneron's reported net sales of $184 million for its COVID-19 therapeutic in 2020 -- most of which came during the fourth quarter. Although the company reported much slower-than-expected initial uptake of this COVID-19 therapeutic, mainly due to administration and logistic challenges, the trend may soon change in face of surging cases in the U.S. and Europe. Previously, the U.S. government had inked an agreement to purchase 300,000 doses of the antibody therapy to be delivered by end of February 2021. However, on Jan. 12, the parties extended the agreement to purchase up to an additional 1.25 million doses by June 30.
Regeneron, however, is much better recognized for its blockbuster retinal disease drug, Eylea. That drug's net sales accounted for more than half of the company's total revenues in the first nine months of 2020. With over 30 million doses administered since its launch, the drug raked in U.S. sales of $4.95 billion in 2020, a rise of 7%. However, investors are worried, as Eylea will lose its patent protection in the U.S. in November 2023. Subsequently, the drug will face biosimilar competition and may lose a significant chunk of its sales.
Some of that investor tension has been eased by the sales gains of two recently launched treatments: immunology drug Dupixent and cancer drug Libtayo. Dupixent's global sales jumped 69% year over year to over $1.0 billion in the third quarter, driven by robust uptake across all approved indications. With just 6% market penetration in approved indications in the U.S., and broad research being done on potential label expansions into new indications, Dupixent's revenues should continue their growth in the coming years. Libtayo also reported $97 million in revenues in the third quarter.
Several other catalysts could help drive up Regeneron's share price in 2021. Prominent among them are FDA decisions on whether or not to approve Libtayo as a treatment for non-small cell lung cancer and a type of skin cancer called basal cell carcinoma. The agency's decisions on those potential label expansions are due by Feb. 28 and March 3, respectively.
The company has demonstrated a healthy financial performance and boasts a solid balance sheet. Revenues rose 29% year over year to over $6 billion in the first nine months of 2020. Non-GAAP earnings per share also jumped 28% year over year to $22. At end of the third quarter, it had cash, cash equivalents, and marketable securities of over $3 billion, and long-term debt of $2 billion.
Regeneron Pharmaceuticals is trading at a forward price-to-earnings (P/E) multiple of 19.8. While that's not exactly cheap, there is still scope for gains because the share price does not yet fully reflect the true potential of assets such as its COVID-19 antibody treatment, Dupixent, and Libtayo. As such, Regeneron Pharmaceuticals is positioned to deliver solid growth in 2021.