It's been a good year to be a Roku (ROKU 1.38%) shareholder: The stock is up a steamy 71% so far in 2023.
Recent investors are smiling, but you can't blame long-term owners of the streaming video pioneer for containing their enthusiasm. Roku stock has plummeted sharply in each of the two previous years. Despite the strong rally this year, the shares are still 86% below the all-time highs hit two summers ago.
Is the latest resurgence in the stock for real? Can the gains stick this time? Let's take a closer look at what Roku is getting right these days, but let's also not ignore the challenges that the country's leading streaming TV hub still needs to overcome.
Life is but a stream
Roku's big gains in 2023 may seem to be a stark contrast to its recent financial performance. Net revenue inched a mere 1% higher in its latest report. After four years of at least 45% top-line growth -- slowing to a 13% increase in 2022 -- business continues to decelerate. It also posted a slightly larger-than-expected loss, its fifth-consecutive quarter with a deficit on the bottom line.
Image source: Getty Images.
Now let's reframe those numbers in a more favorable light. It's hard to get excited about a revenue gain that can't even keep up with inflation, but it follows flat growth in the fourth quarter of last year. This is actually accelerating top-line growth.
Roku's earlier guidance was also calling for a 5% decline in revenue through the first three months of the year. The first quarter was a beat on the top line.
The deficit is problematic, but there's a silver lining in the pool of crimson ink: After seven straight quarters of sequential deterioration on the bottom line, Roku posted quarter-over-quarter improvement for the first time in nearly two years.
Fixing the bottom line will take time, and 2023 will be grueling for investors looking for a short path to profitability with their growth stocks. This year's loss is expected to be worse than last year, but Roku has been recently vocal about controlling costs and prioritizing expenditures based on their near-term return on investment.
There's always something good on TV
Roku's latest financials aren't great, and there hasn't been a flurry of positive company-specific news or bullish analyst moves. Why is the stock moving higher in 2023? Just as the rally that once pushed the stock to nearly $500 in late July 2021, Roku appears to be at the right place at the right time again.
Roku's platform has never been more popular than it is right now. There were a record 71.6 million active accounts at the end of March, and its market share keeps growing. Engagement is strong, with a 20% year-over-year improvement in streaming hours, outpacing the 17% increase in users over the past year.
The swift slowdown in revenue stems from the slide in ad revenue, but there are signs that the connected TV ad market is starting to bounce back. Roku is also a beneficiary of recent moves by the leading streaming services, such as introducing ad-supported tiers and tackling password sharing. Roku is at its best when viewers have choices to consider and decisions to make.
If the tide is turning on the ad front -- and average revenue per user starts to rise again -- Roku shares can justify adding to this year's upticks. Those gains can go even higher if Roku is able to shorten its time frame for a return to profitability, or if it makes inroads in other markets as well as it has through North America.
As a leader among streaming service stocks, Roku finds itself in the spotlight again. It can't blow it this time.
