Shares of Roku (ROKU -0.69%) gave investors a vicious case of whiplash today. After initially turning sharply higher and gaining 8%, the stock retreated to just above breakeven.
As of this writing, however, shares of the media-streaming technology expert have slipped an additional 5% in after-hours trading, after streaming service Netflix (NFLX 0.45%) lowballed subscriber-growth guidance for the first quarter of 2022, aiming for just 2.5 million net new customers. By comparison, the same period of 2021 saw 3.98 million additions. Reported subscriber additions in the fourth quarter stopped at 8.36 million, missing Netflix's own guidance of 8.5 million. As a result, investors are painting all streaming companies with the same brush -- and ditching Roku shares in the process.
This all occurred on a day when there were plenty of positive developments for the streaming pioneer, which begs the bigger question, "Is Roku stock a buy?"
Image source: Getty Images.
There are plenty of reasons to be bullish on Roku, but let's start with the 800-pound gorilla in the room. As of the market close on Thursday, Roku stock has fallen 65% from its recent high. There's little doubt that headwinds caused by the correction in the tech-heavy NASDAQ Composite -- which is currently down more than 12% from its peak -- are a contributing factor.
Of bigger concern to investors, however, is a troubling trend that emerged in Roku's third-quarter financial results. Two of the company's most closely followed metrics delivered tepid growth. Active accounts grew just 23% year over year, while streaming hours climbed 21%. To give those numbers context, active accounts grew 39% in 2020, while streaming hours increased 45%. Given the obvious slowdown, it's easy to see why investors might be concerned.
However, that information shouldn't be viewed in a vacuum. Roku's third-quarter 2021 results were impacted by the loosening of pandemic-related restrictions in many places, allowing viewers to put down the remote and go on vacation for the first time in more than a year.
Perhaps more importantly, Roku's average revenue per user (ARPU) jumped 49% to $40.10 over the trailing-12-month period. At the same time, the platform segment -- which includes digital advertising and accounts for the lion's share of Roku's revenue -- grew 82% year over year. This robust growth illustrates that marketers are paying up to reach Roku's 56.4 million active accounts.
Investors who buy now are getting all that solid growth at a significant discount. That's why I believe Roku stock is a buy.
