Here's Why Roku Is a Decades-Long Growth Story

When Roku (ROKU 0.15%) reported its fourth-quarter results, investors didn't expect any surprises, particularly since the company had preannounced the most important metrics in early February. That didn't stop Roku from reporting a couple of earnings shockers. Not only did it switch from a loss to a profit, but also surpassed Amazon's (AMZN -1.64%) Fire TV as the leading streaming platform.

On this clip from Motley Fool Live, recorded on Feb. 22, "The Wrap" host Jason Hall and Fool.com contributor Danny Vena dig through some of the most important takeaways from Roku's announcement.

Jason Hall: Danny Vena. Roku just reported earnings, what have you got for us?

Danny Vena: I wanted to hit some of the highlights, but I also wanted to dig a little bit deeper into the shareholder letter because there was some really important stuff that came out there. I'm going to go ahead and share my screen here briefly so we can talk about some of the high-level stuff. And here is Roku shareholder letter. They reported last Thursday, after the market closed. The stock reacted on Friday.

Some of the highlights for Q4 and 2020, the company achieved "record revenue, record gross profits, and record adjusted EBITDA," surpassed 50 million active accounts which they had pre-announced. If you scroll down here, you will see now that they've had consistent active account growth, another 39% year over year in the fourth quarter, up over 51 million active accounts. The streaming hours surpassed 17 billion for the fourth quarter, which was up 55% year over year. The average revenue per user is up another 24% to over $28.

Just a little bit further down here. Platform revenue, which is Roku's bread and butter. This covers their digital advertising, the revenue that they get from The Roku Channel, and also the licensing revenue that they get from the Roku operating system (OS) that they license out to connected TV manufacturers, up 81% year over year. That is a tremendous number, and also finally, and the one that was really a surprise here, Roku was profitable in the fourth quarter.

The analysts were expecting a loss -- I'm just quickly running back here and look at these numbers. Here we go. So Wall Street was expecting $619 million in revenue and a loss of $0.05. Roku delivered $650 million, up 58% year over year, and earnings of $0.49 a share. That's a tremendous earnings number, and I was really impressed by several things that I saw in the letter.

I'm going to scroll back down here because there's a couple of things that are visual aids here. If you look at net revenue and how it has consistently gone up. Look at this, it was only around $400 million, four years ago, and now it's at $1.7 billion. That's just such an impressive growth there. Platform revenue has gone even more than that, up more than tenfold. Gross profit has grown more than sevenfold, it looks like or nearly sevenfold. So impressive numbers. The number of active accounts.

I'm just going to jump ahead here because this is what I thought was really impressive. [Comcast's (CMCSA -0.37%)] Peacock, which just recently debuted, had a deal with Roku and ran a prime time ad on Roku's platform so that when you opened up your Roku television or turned on your Roku device, you saw an ad prominently displayed on the front page for Peacock. That gives you an idea of just how much these folks are really leaning into what it is that Roku has to offer.

One of the notes here from a customer. Friendly TV said, "For every dollar we spent on Roku versus a large social media platform," [coughs] Facebook, "We had a 65% better return on investment with Roku as their promotional capabilities attract the right customers in the right mindset to build long-term relationships."

That's something that I'm really impressed by the fact that the people that are out there spending money are starting to take that money that they were spending on traditional broadcast and linear television advertising and cable TV, and those dollars are starting to shift to connected TV and to streaming.

Roku is at the right place there at the intersection. They have the most popular streaming platform in the United States. They have outpaced Fire TV and Amazon. So they are now the leader. In addition to that, they'll make the majority of their money from digital advertising. They've been investing heavily in that space, and as a result, that advertising is growing significantly. This is one of the reasons why I named Roku as one of my two highest conviction stocks for this year, and I think it still has plenty of room to run.