Roku (ROKU -10.29%) has had a great year. The widely followed streaming service stock has skyrocketed 133% in 2023 through Tuesday's close. Can it double again next year?
It's never an easy feat to double in back-to-back years, and some feel that even this year's beefy gains aren't warranted. A pair of analysts downgraded Roku two weeks ago, concerned that the stock's big step up this week isn't warranted. One of them even implied that Roku could be losing market share, a big deal for the top dog in its niche that has historically widened its market lead over rivals.
I'll take the other side of that argument. Roku remains one of the more promising investments for 2024. Let's go over some of the reasons why I feel that the pioneer of streaming operating systems for TVs could keep winning the year ahead.
1. Momentum is on its side
Roku shares moved sharply higher last month after the company posted blowout financial results. It wasn't a fluke. Roku came through with another beat-and-raise report. The 20% year-over-year revenue jump wasn't just better than the market was expecting. It was the third straight quarter of accelerating top-line growth. After rattling investors earlier this year with back-to-back reports of flat revenue gains, Roku has rebounded with back-to-back performances of double-digit moves on the top line.
It's not the only key metric moving in the right direction. Average revenue per user (ARPU) turned positive sequentially in last month's third quarter, something that investors haven't seen in a year. Since this is a trailing-12-month metric, it means that it was deteriorating early in 2022 but has been recovering since the springtime of this year.
The 75.8 million active accounts on the platform is another record, and a 16% increase over the past year. The hours spent on the platform rose 22%, another encouraging sign of engagement since it's growing faster than the actual active user number. If Roku is losing market share -- as one analyst is implying -- it's not showing up in the numbers.
Image source: Getty Images.
2. Valuation concerns are overblown
Roku's stock has clearly outpaced its revenue upticks this year. Red ink is a bigger problem, widening and clocking in with a record operating loss in its latest quarter. This will naturally open the door to valuation concerns, but have we forgotten that Roku is still more than 80% lower than it was when it peaked just north of $490 in July 2021?
Roku is a much larger company now than it was nine quarterly reports ago. In the summer of 2021 Roku had 55.1 million monthly active users, serving up 17.4 billion hours of streaming content through its platform, and had trailing-12-month revenue of $2.32 billion. Today, Roku is 38%, 53%, and 45% higher, respectively, across those three measuring sticks.
Sure, Roku was growing faster at the time. It was also profitable, a big knock on present-day Roku. However, Roku would have to double from here -- and double again -- just to approach its market cap at its peak.
3. Signs of a kinder 2024
Roku isn't going to stun investors by returning to profitability in the coming year. However, Wall Street deficit targets have contracted considerably since last month's head-turning quarter. The loss of $2.10 a share that analysts are now modeling for all of 2024 is less than the red ink it posted in just its latest quarter.
Roku entered 2023 with concerns about the ad market deteriorating in an iffy economy. Hollywood writer and actor strikes as the year played out made things even more dicey. The climate is more favorable now. Marketers are hungry again to reach streaming audiences. Many of the more popular premium streaming services have added ad-supported tiers -- something that some boo birds paint as a negative for Roku as a competitive threat -- but that doesn't add up. Industry affirmation will drive more advertisers to connected TV spots. With more than 75 million active accounts and Roku expanding overseas it also gives it more negotiating power to make sure that it gets a piece of the ad revenue from the thousands of apps on its operating system.
Roku roared in 2023. Like Leo the lion at the the start of an MGM feature, Roku is ready to roar twice.
