In the deepest, darkest depths of the early coronavirus recession, Roku (ROKU -0.72%) stock changed hands at just $58 per share. The crash quickly turned into a soaring rebound when investors realized that lockdowns would be good for this company's business prospects, especially since a ton of new video-streaming services were hitting the market. By February 2021, the media-streaming technology expert's shares had skyrocketed to $487 -- a gain of 736% from bottom to top.
But the gains didn't last. When COVID-19 vaccines became widely available, and the pandemic started to fade out, many investors concluded that Roku's glory days were over. The stock is back down to $84 per share these days, more than 80% below last year's lofty peak.
And that massive price cut spells a tremendous investment opportunity for you and me. The powers that be are making a huge mistake here because Roku's growth story is just getting started.
Roku's tremendous street cred
Roku is a world-leading provider of technology platforms for media-streaming services. What started as a range of Roku-branded hardware solutions has shifted over to a software focus. A dozen different TV manufacturers run the Roku OS on their smart-TV products, including household names such as Sharp, Philips, JVC, and TCL. Whether you shop for smart TVs at Walmart, Amazon, or Best Buy, you'll find Roku-powered models all over their bestseller lists.
So Roku already has enough clout to demand respect in the entertainment industry. Any video-streaming service worth its salt needs to make sure that the Roku platform will support it. Otherwise, the media service would miss out on a significant slice of the North American market.
Roku had 61.3 million active accounts at the end of March, up from 53.6 million active customers one year earlier. To put these numbers into context, its closest competitor Vizio only sports 15.6 million customers.
The road ahead
Sixty-one million customers is a good start, but Roku doesn't dominate the American market with an iron fist. Major TV makers like Vizio, LG Electronics, and Samsung prefer to use homegrown streaming software. Roku can fight for a larger slice of that crucial pie over time.
Furthermore, nearly all of Roku's customers to date are found in North America. There's a great big world out there, and this company could find millions of new customers abroad.
On top of the license fees Roku pulls in for each software-equipped TV set, the company also collects advertising sales. The size of this revenue stream grows wider as Roku enters new markets and shows larger subscriber numbers to interested ad-space buyers. The potential target market is enormous on a global scale, and Roku has barely scratched the surface of it so far.
Roku's future business prospects look fantastic, and here's a glance at the company's revenue growth over the last five years. I don't know about you, but this does not look like an exhausted growth story to me.
ROKU Revenue (TTM) data by YCharts.
Furthermore, the company already generates reliable profits and free cash flows, which sets it apart from the masses of speculative businesses with impressive revenue gains but negative profits. This robust financial platform lets Roku try new business ideas that could drive a less well-heeled company to the brink of bankruptcy.
So you get a proven leader in an explosive growth industry, serving a worldwide target market in the long run, and you're paying a fraction of the share prices Roku commanded as recently as last year. That makes this stock a long-term winner in my book.
