Roku (ROKU 1.58%) has streamed massive profits for its investors since its debut as a public stock in September 2017. In just under four years, Roku's stock price has risen by more than 1,900%. However, with the run-up in the stock, some investors might wonder if they have missed out?
Let's take a closer look to see if new buyers can still find opportunities.
The state of Roku stock
The massive surge in Roku's stock price has reached a fever pitch over the last year, and understandably, many see it as a stock that can supercharge your portfolio.
Image source: Getty Images.
In the last 12 months alone, Roku stock price has shot higher by almost 220% and trades near an all-time high. This has taken its market cap north of $60 billion and its price-to-sales (P/S) ratio to just above 30. In comparison, the P/S ratio stood at around 14 one year ago, and the stock sold for about five times earnings at the time of its 2017 debut.
ROKU data by YCharts
The company's financials have likely helped to bolster the stock price. In the first quarter of 2021, revenue rose 79% from year-ago levels to $574 million. A 35% increase in the subscriber base and the 32% increase in average revenue per user drove that growth. Moreover, a more modest rise in operating expenses compared with last year helped it turn a profit as it earned $76 million during the quarter.
In fiscal 2020, revenue increased 57% from 2019 levels to $1.8 billion. It also cut its losses to $18 million, down from $60 million in 2019. Since operating expenses only increased by 47%, Roku not only reduced its losses but turned a profit in the last two quarters of 2020.
Due to the uncertain recovery from the pandemic, Roku management has only projected out to Q2. Nonetheless, the $610 million to $620 million revenue estimate would mean an increase of at least 71% year over year.
Understanding its competitive edge
Despite that impressive growth, the hardware, smart TVs, or even the Roku operating system did little to drive the stock surge. Instead, the increases came because it dominated in an area that has bolstered some of the biggest companies in tech -- advertising.
It has designed its platform to "deliver relevant audiences" and "measurable results" for the brands and agencies that make up its clientele. It enhanced this ability partially with its OneView Ad Platform. This allows clients to tailor ads based on ad type and specific programs through its first-party data, measurement, and optimization functions.
Additionally, its relationships with streaming services helped to build its reputation. Roku began as a neutral platform. However, that eventually changed when it launched the Roku Channel, a free streaming service that shows programming with commercial interruptions. Now, it has begun to produce its own content, which will place it in more direct competition with Netflix, Disney, and other streaming services.
That might have hampered growth in the past. Nonetheless, Roku is now the No. 1 streaming platform with a 41% market share, according to Conviva. This makes it less likely streaming services will end their relationships with Roku.
Moreover, it holds the top market share in Canada. Also, it reported rapid growth of scale and engagement in both Brazil and Mexico, and added broadcast agreements in the UK and Ireland. Thus, it has only begun to scratch the surface of where it can go outside of the U.S. This indicates that, at least in the long term, the stock has not finished moving higher.
Is it too late?
Streaming is the future of television, and it has become increasingly clear that Roku will play a prominent role in that trend's monetization. However, the stock has seen a massive run-up to record highs, and at over 30 times sales, its impressive revenue growth may not justify that multiple. While it is not "too late" for Roku, the streaming service stock could experience a significant correction before moving higher.
