The world of streaming entertainment is vast and highly competitive. Long gone are the days when only a few streaming companies monopolized our viewing time, and it seems that every company with any content is starting its own streaming service.

There's no doubt this is a growing industry with a large market opportunity. The global video-streaming market was valued at $372 billion in 2021 and is expected to grow to over $1.6 trillion by 2029. For investors looking to profit from this opportunity, there are several stocks to consider adding to their portfolios. Let's look at one choice in this space that is poised to make its shareholders very happy over the long term.

Two people on a couch smiling and watching TV.

Image source: Getty Images.

More than streaming boxes

The average consumer is likely familiar with Roku (ROKU -0.20%) because of its hardware devices that are used to stream content. Whether it's through the purchase of a streaming device, or a TV with Roku built-in, over 60 million customers use the service to watch their favorite shows, movies, and live television. While these devices play an important role in its strategy, they're far from the most important aspect of the business. 

Streaming devices only account for approximately 12% of Roku's revenue. And recent supply chain and inflationary pressures have made that part of the business unprofitable, meaning they currently cost more to make than they sell for. In the short term, that's not a big concern because these devices are the way Roku gains users, which drives the rest of the business. 

Growing users and hours

In the first quarter of 2022, Roku added 1.1 million new active accounts, to reach a total of 61.3 million, a 14% increase year over year. Once these users are on the platform, they can access streaming content from almost any provider by downloading apps onto an easy-to-use home screen. 

One of those apps, the Roku Channel, is the company's free, ad-supported channel that features more than 80,000 movies and TV shows. Recently, the company has been investing in its own content for the Roku Channel, including the This Old House franchise as well as the mobile-first video catalog of Quibi. 

The content that can be accessed on the Roku platform has engaged users. In the first quarter, total streaming hours were 20.9 billion, up 14% from the year-ago quarter. 

Monetizing users

This user growth and increase in streaming hours are important because they allow Roku to monetize its users in multiple ways. For example, the platform makes it easy for users to purchase content. When users create an account, they provide a payment method, even though the use of Roku is essentially free. When a user later decides to subscribe to a streaming service or rent a movie, the billing occurs seamlessly through the Roku account and the company takes a percentage of the sale. 

The most important way that Roku monetizes its users is through advertising. Whether through commercials that air while users are watching content or with ads on the platform's home screen, the company makes money selling that ad space. So far, this has been a successful business model. In the first quarter, average revenue per user (ARPU) increased 34% year over year to $42.91, and platform gross profit grew 22%. 

Future growth trends

Roku is currently the leading platform by hours streamed in the U.S, Canada, and Mexico, and management thinks there's still room to grow. Daily streaming hours per active account totaled 3.8 in the first quarter, but the average U.S. household watches about 8 hours of TV per day.

How consumers watch TV is also changing. For the first time, streaming TV has surpassed legacy (non-streaming) TV in weekly average reach. According to Nielsen, 65% of people ages 18 to 49 watched streaming TV, compared to 63% for legacy TV. Roku believes this trend will continue and that its platform allows its content partners to attract and retain viewers as they shift from legacy to streaming.

The bottom line for investors

Roku's price-to-sales ratio is currently 4.5, which is approximately the same as at the beginning of 2019. This means the company is essentially as expensive as it was then when it had only 27 million active accounts, 7.3 billion total streaming hours, and an ARPU of $17.95.

Clearly, the business is stronger now and has a much larger foothold in the streaming space. With its leadership position, it's hard not to see the current valuation as anything but a buying opportunity. If Roku can continue to grow along with the larger streaming industry, it will reward shareholders for years to come.