Netflix announced it lost 200,000 subscribers in the first quarter of this year, with expectations to lose 2 million between April and June, and that news seems to have soured investors on streaming-related stocks. Sentiment has significantly changed for a sector that was a huge beneficiary of the pandemic for most of the past two years.
Despite Netflix's woes, Streaming platform and media player manufacturer Roku (ROKU -2.62%) just posted a strong outing during the three-month period that ended March 31. Revenue increased 28% year over year, exceeding Wall Street's estimates. And management expects 2022 sales to be 35% higher than last year.
There is a pessimistic view surrounding the industry's prospects right now (especially thanks to Netflix's poor results), but Roku's latest quarterly results show it is still firmly a growth stock.
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Roku is thriving in a challenging environment
While a revenue jump of 28% is a sizable slowdown compared to Roku's gains over the past few years, it's impressive given the current macroeconomic environment.
In Roku's case, soaring inflation is resulting in less money for discretionary consumer spending, a category the company's products belong in. What's more, ongoing supply chain issues caused U.S. TV prices in Q1 to increase, which means fewer units have been sold compared to pre-pandemic 2019. And lastly, the consensus view that the economy will slow down as the Federal Reserve raises interest rates may cause advertisers to curb their marketing spending on Roku's platform in the near term.
With this perfect storm of headwinds in place, you'd think Roku's business is struggling right now. This assumption could not be further from the truth. In the most recent quarter, the three most important metrics to track, which help investors gauge Roku's success, all demonstrated healthy progress.
Active accounts (now at 61.3 million) increased by 1.1 million sequentially and 14% year over year. Engagement, as measured by hours streamed on the platform, also rose 14% from Q1 2021 to Q1 2022. Roku's members streamed an incredible 20.9 billion hours of content in the first three months of this year.
But none of these data points matter unless Roku can monetize its expanding user base. Average revenue per user climbed 34% year over year to $42.91 in the first quarter. That number clearly shows the strength of the platform. Adding a greater number of accounts that engage more with the service is key. Couple this favorable situation with Roku's ability to boost monetization, and it's evident how well the business is performing.
Roku's persistent growth proves it still has a massive opportunity in front of it to continue attracting advertising dollars that are shifting from traditional cable TV to streaming. And that's a big reason why I just bought more stock.
