I just caught a conference presentation by Roku (ROKU 5.41%) founder and CEO Anthony Wood. In a half-hour fireside chat with an analyst at this week's Morgan Stanley tech and media industry conference, Wood highlighted some crucial aspects of Roku's long-term growth strategy.
Now, I know what you're thinking -- "Corporate jargon? Business speak? Hard pass!" But trust me: This talk was anything but boring. Wood dug deep into the video-streaming market and how it's shaking up the way we consume media. I'm here to share some of the juiciest takeaways with you so we can all stay ahead of the curve.
Roku's impressive growth
Roku has been on quite a journey over the last 20 years. In the decades since Wood's company dreamed up the first video-streaming set-top box to support Netflix (NFLX 4.17%) and its newfangled digital content idea, Roku has grown into a household name with millions of users across the globe.
But what really caught my attention was the staggering growth Roku has seen in the past year. Despite the global inflation crisis throwing a wrench into everyone's plans and tightening both corporate and personal budget belts, Roku managed to add 9.9 million active accounts in 2022, bringing its total to a whopping 70 million. Anthony credited this growth to several factors, including increased streaming demand and Roku's expanding share of the media-player market.
Time to turn the profit spigot
It's not just the number of accounts that's impressive -- it's the level of engagement. Benjamin dropped a mind-boggling statistic on us: Roku users streamed an average of almost four hours of content per day in the fourth quarter, a 5% increase from the year-ago period. That's a huge amount of time spent on the platform and a testament to the quality and value users see in Roku's products.
Anthony pointed out that the company stands at a crossroads right now, and the time is ripe to make an important change.
"We felt that, in the earlier days, it was better to reinvest as much as we could into acquiring market share in something that's going to be a huge business," Wood said. "Now we've got 70 million active accounts and enough scale that just seems like the right time to transition to, OK, we're going to start focusing on profitability and not just market share."
So Roku's focus is shifting from pure-play user growth to a more profitable business plan. Step 1 was to build a long list of active users, followed by increased engagement and viewing time per user. These two components are still active, but Roku also wants to generate more top-line revenue and bottom-line profit per user these days. Unsurprisingly, this adjustment reminds me of how longtime partner Netflix is executing a similar strategy shift right now.
Of course, Roku treats each specific market as a unique opportunity. The monetization effort is largely limited to more mature segments, like the U.S. and Canada, so far, but Wood is eager to move ahead:
In many international markets, we're still in the grow-active-account phase, but we are starting to move into the monetization phase in some countries. I think Mexico is a good example. In Mexico, we used to have one TV OEM partner. Now we have [around] 19 OEM TV partners. We've grown our market share to being the #1 TV OS in Mexico. We've launched the Roku Channel in Mexico. We've started building out an ad team in Mexico. So we're starting to focus on monetization. (edited for clarity)
ROKU data by YCharts. TTM = trailing 12 months.
Huge growth, no respect
I am convinced Roku will be a story of enormous long-term growth as the digital video-streaming industry expands into every corner of the world. The single-minded distribution of streaming hardware and software platforms has been joined by ad sales and original content creation. And I'm sure the market expansion ideas won't stop there.
Roku's sales have increased by 509% over the last five years, but the stock price only rose 10% in the same period. Now, Roku shares trade at the modest valuation of 2.7 times sales, while the top line is soaring at a five-year compound annual growth rate (CAGR) of 43.6%. It's a rocket-powered growth company tethered to a geriatric deep-discount stock.
In other words, Roku's stock looks like a no-brainer buy right now. When the focus on profitability starts to move the needle, you don't want to be left empty-handed as investors embrace the overnight success that was years in the making.
