Streaming stocks have been absolutely punished by investors of late. Look at industry powerhouse Netflix for example -- its stock price has collapsed 59% year-to-date in the wake of a slowdown in growth and macroeconomic headwinds like high inflation and the Fed's interest rate hikes.
Another stock at the center of the streaming universe is Roku (ROKU -0.19%), which has performed equally poorly in recent times, plunging 65% since the start of the year. It's clear that investors as a whole have fallen out of love with streaming stocks.
But could that mean we've been gifted with many scarce buying opportunities? Star stock picker Cathie Wood's third-largest holding in her ARK Innovation ETF is Roku. Let's look at its latest financial situation to see if it's a buy at the moment.
Looking inside Roku's business
Broadly speaking, Roku sells hardware devices that allow consumers to stream media content from one simple location. Owners of a Roku device have access to free and paid video subscription services such as Netflix, Disney+, Amazon Prime Video, Apple TV+, and Warner Bros. Discovery's HBO Max, among many others. As of the first quarter of 2022, the company controls over 50% of the Connected TV (CTV) market in North America, which is an excellent sign given that the global CTV industry is forecast to expand at a compound annual growth rate (CAGR) of 15.5% from 2021 through 2026, according to Mordor Intelligence.
The company posted second-quarter earnings on July 28 that didn't quite meet investors' expectations. Its total net revenue rose 18.5% year-over-year to $764.4 million, and it also finished with a diluted net loss of $0.82 per share, falling short of analysts' negative $0.69 estimate. The top-line growth was driven by a 26.5% surge in revenue from its platform segment, which includes digital advertising sales and content distribution services. Meanwhile, revenue from its player devices, representing about 12% of total sales, declined 19.1% year-over-year to $91.2 million. Player revenue is generated primarily through the sale of its streaming hardware devices.
In terms of other key operating metrics, active accounts increased 14.5% to 63.1 million, and average revenue per user (ARPU) rose 21%, up to $44.10. Total streaming hours also expanded 19% to 20.7 billion as more consumers continue to ditch cable television and resort to streaming services. For the full fiscal year, Wall Street analysts project Roku's total revenue to grow 12.8% year-over-year to $3.1 billion, and its earnings to finish in the red with a $3.11 per share loss.
Without a doubt, one of the major concerns investors have about the streaming-focused company is its ability to consistently generate a positive bottom line. The company currently has $2.1 billion in cash and cash equivalents, and given that it has only burned $5.0 million in cash over the past 12 months, Roku has ample time to turn its situation around before needing additional funding.
Should investors snatch Roku stock right now?
It's clear that Roku has confronted some growing pains lately, but a couple of subpar quarters shouldn't derail you from investing in a company over the long run. At a market capitalization of just $11.2 billion today, this is a stock that could generate fortunes for patient investors who are willing to buy at current lows. Right now, the stock carries a price-to-sales multiple of 3.7, its lowest level in three years.
And let's not act like Roku isn't firmly positioned for a sound bounce back -- the company is a downright leader in a fast-growing industry. Even though it may seem difficult, down periods are the time for prudent investors to go shopping, and Roku makes for a compelling buy case at this time.