Roku (ROKU +0.44%) is a market leader in an expanding industry, but this doesn't mean that the shares can pop tenfold in the next 10 years. The starting line is kind right now. Roku may have more than doubled this year, but the shares are still trading for less than a fifth of the all-time high hit in the summer of 2021.
The share count is only marginally higher now. In short, the market perception of Roku's fundamentals would have to return to where it was two years ago, and then double from there. This can definitely happen in the next 10 years, especially as Roku is showing clear signs of overcoming the bearish knocks on the streaming media pioneer.
NASDAQ: ROKU
Key Data Points
Getting louder
There was a lot to like in Roku's latest quarterly update, a well-received report that catapulted the stock a blistering 75% higher in November. A lot of the negatives weighing on the platform's success -- slowing revenue growth and declining average revenue per user (ARPU) -- went away. The 20% top-line growth it posted was the biggest year-over-year gain since the first quarter of 2022. It was also the third consecutive report of sharply accelerating revenue growth.
- Q4 2022: 0.2% revenue growth
- Q1 2023: 1%
- Q2 2023: 10.8%
- Q3 2023: 19.8%
ARPU also turned positive sequentially for the first time in more than a year. This is a pretty big deal. Active accounts have grown consistently. Engagement has also been steady, as streaming hours continue to keep up and at times exceed user growth. The hiccup in monetization was a setback in the connected TV advertising market. Roku is finally turning the corner on that front, and as the marketing platform gets more interactive, it should become even more lucrative.
Image source: Getty Images.
The state of streaming circa 2033
A lot can happen in the next 10 years. Roku is currently the industry leader, and it has padded its lead against the tech, consumer tech, and e-commerce giants that it competes against in this popular niche. No market leader is obviously a lock to still be in the pole position a decade from now, but Roku has achieved ubiquity in the world of streaming service stocks. There were 75.8 million active accounts on Roku at the end of September, a 16% increase over the past year.
Despite its leadership in an important field, Roku commands a modest market cap of $12.7 billion. Its rich net-cash position pushes its enterprise value down to less than $11.4 billion. As the gateway of choice to streaming on TV, Roku has many roads to a 12-figure market cap by 2033.
Growing its audience is one path to a more valuable Roku, and the roadmap is already there. Roku has become the top platform in Mexico and Canada. It is expanding deeper into Latin America, and its push into the United Kingdom is the first step of establishing a presence in Europe and beyond. The platform itself can also become more lucrative. Roku has generated an average of $41.03 in revenue per user over the past four quarters, and the ceiling is high. Marketers need to reach Roku's growing audience, and the platform keeps evolving its offering to make it easier for advertisers to stand out and establish direct connections with interested viewers.
Then we get to Roku's current lack of profitability, the last remaining ace card for the naysayers. Roku was briefly profitable for six quarters through the end of 2021, perhaps not coincidentally the year when the shares hit an all-time high just above $490. It has rattled off seven straight quarters in the red since then, and that's not expected to change anytime soon. Analysts don't see Roku returning to profitability until 2027. Investing in content, expansion, and new product lines has weighed on the bottom line, but things are getting better. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) just turned positive after more than a year of negative results. Analysts also see its annual deficit more than halved in 2024. Roku is getting the balance right between investing in growth and controlling costs to give bulls the ammo they need to finally vanquish the bears.
This has been a good year for Roku. The next 10 years could be even better.
