What happened
Shares of connected-TV platform company Roku (ROKU 1.58%) jumped 41.3% in January, according to data provided by S&P Global Market Intelligence. And as of early trading on Feb. 2, Roku stock is up another 12% for a total year-to-date gain of 58% -- easily outpacing the 7% year-to-date return for the S&P 500.
Roku's gains seem to be based on some fundamental improvements to the business, which is good. However, there is still reason for caution here.
So what
Roku kicked off the new year by launching its own line of smart TVs. The company has built a smart-TV operating system that has traditionally powered third-party smart TVs. But now it will be using its technology in TV hardware of its own. The move was widely praised by Wall Street.
The next day, Roku announced that it had surpassed 70 million active accounts on its platform worldwide. This is a huge sequential jump from the 65.4 million active accounts it had at the end of the third quarter of 2022. In fact, adding 4.6 million active accounts in a single quarter is the company's best quarterly gain since the fourth quarter of 2020.
Roku closed out January with one final win when it did a deal with Warner Bros. Discovery. Starting this spring, content from Warner Bros. Discovery's library will stream for free on The Roku Channel. It's just the latest deal in a long line of wins for Roku -- it's historically been successful in being a distribution channel for third-party video content.
Roku has already notched another win in February, in my opinion. Cox Automotive owns important brands including Kelley Blue Book. And this important vehicle data is coming to Roku to better measure the effectiveness of its ads. According to the press release, Roku is the first streaming service company to partner with Cox Automotive.
All of these things, plus improving market sentiment, led to Roku's incredible gains in January.
Now what
Not everything in Roku's outlook is rosy. For example, Alphabet's YouTube is testing out free ad-supported channels of its own, according to a January report from The Wall Street Journal. This could potentially increase competition for Roku.
Moreover, it's unclear whether it's actually a good idea for Roku to launch its own line of TVs. Consider that the company has sold hardware devices at a gross loss now for six consecutive quarters and launching new hardware devices would likely only contribute to those losses.
On one hand, Roku's management is more concerned with gaining accounts than turning a hardware profit. On the other hand, losses are mounting for the company overall.
Roku will announce financial results for the fourth quarter of 2022 on Feb. 15. At that time, investors will get greater clarity regarding the company's financial situation headed into the rest of 2023.
