Media-streaming technology veteran Roku (ROKU -10.29%) will report holiday-quarter results on Thursday evening. Investors are approaching this event on a high note, as Roku's stock price has increased by 72% over the last year. But the stock also stands 80% below the all-time highs from the summer of 2021, so it's not all rainbows and butterflies.
As the streaming wars heat up, Roku finds itself at a critical juncture. This week's results will set the stage for a new era in Roku's story of user growth and global expansion. On the eve of a potentially game-changing business update, let me walk you through where I see Roku going over the next three years.
Quick rewind: How Roku's 2022 predictions played out
In the earnings call two years ago, Roku's management called their company "a leader in a very large global opportunity." The ad-supported Roku Channel reached the households of 80 million viewers, the number of active Roku users stood at 60 million accounts, and the long-term vision was that digital-streaming platforms will replace old-school media channels and advertising options over time.
Those were the early days of the inflation crisis, though. Economic issues put a roadblock in front of Roku's progress in many ways, starting with limited advertiser interest and an industrywide slowdown in streaming viewership. Sector giants (and crucial content partners for Roku) such as Netflix (NASDAQ: NFLX) and Walt Disney (NYSE: DIS) ran into brick walls worthy of the Road Runner and Wile E. Coyote (a pair of cartoon characters).
So how did the next couple of years work out for Roku in this challenging market?
Well, the stock price is down more than 40% from the eve of that fourth-quarter update. But trailing revenues are up by 22%, Roku sported 76 million active accounts in the latest earnings report, and the streaming hours just keep rising. As it turns out, Roku can generate healthy viewership growth even while many of its content suppliers are struggling individually.
Revived growth prospects in 2024 and beyond
The inflation-flavored lean years may be behind the media market at this point. Netflix posted double-digit percentage growth in subscriber counts for the last two quarterly reports. Disney expects to restart its stalled subscriber growth in the spring and report streaming profits in fiscal year 2024. Both stocks soared on their recent earnings reports, setting the stage for a strong Roku update, too.
Beyond that potential jump, Roku should be off to new growth adventures, driven by healthier financials. Armed with robust cash flows and rekindled growth prospects, the company is ready to push harder on its international expansion ambition. On top of that bullish trend, the digital advertising market is coming back to life.
Assuming the world economy doesn't run into another crippling crisis along the way (famous last words, I know), I expect Roku's user count to cross 100 million names over the next three years. I don't expect a towering pile of profits, since the company should remain in a high-octane growth mode for the foreseeable future. Instead, Roku will probably make heavy investments in original Roku TV content, marketing its international products and services, and the short-term research and development budgets will create long-term business drivers.
Roku's unique edge in the streaming wars
Roku's growth story is far from over; it's merely entering an exciting new chapter. Investors considering Roku stock right now should weigh the company's growth prospects against the backdrop of a brutally competitive streaming market -- where this company can be a winner no matter which streaming service walks away with the most subscribers, viewing hours, or profits. The platform people use to interact with their favorite streaming services remains the same, and no one can hold a candle to Roku's dominant market share in this space.
As Roku navigates the complexities of the digital landscape, its stock trades at a modest 4 times trailing sales. Streaming is the indisputable future of entertainment, and Roku plays a leading role in this digital revolution. If you pick up a few Roku shares this week, you'll probably want to thank me for the tip in 2027.
