No matter who wins streaming, this stock is ready to climb
Roku‘s (ROKU 5.60%) equities have been hit hard over the past year, but there was some good news in the latest earnings report. In this video clip from “The Virtual Opportunities Show” on Motley Fool Live, recorded May 31stFool.com contributors Jose Najarro and Travis Hoium examine the company’s impressive growth in key areas.
Jose Najarro: At first we can only see that Roku has definitely taken a good hit from the year. Today it is down around 72%. But if we turn around and take a closer look at some of the fundamentals of the company, we can see that they have plenty of cash and short-term investments around $ 2.2 billion. They are positive in cash flow from operations and they have very low-term debt.
This is a company that is also growing at impressive levels. In the last quarter, they grew by around 28%. This after a strong comparison year last year. We could see last year it was a quarter where they grew over 75%. In some quarters they grew around 40%, 30%.
Roku, for those who are not familiar, this is a company that makes money in two different ways. First is their platform revenue. This is their operating system. They have many great tools here, such as advertising and analytics for streaming companies. We can see that this is their largest revenue segment which was $ 646 million up 39% from year to year.
Then they have their player income, a smaller part. But these are their hardware. Unfortunately, it was down 90% for several reasons. One thing is only supply constraints and supply chain problems that are happening at the moment. Then only the general macroeconomics, as well as probably fewer people right now, focus on maybe buying TVs, or they made a big TV purchase maybe the same time last year that they do not need to buy a new one right now.
But as I mentioned, the total net income grew by around 28%. Some pretty cool stats about Roku are first active accounts. It grew 14% year over year to now 61.3 million, and it actually grew quarter over quarter. Streaming hours are also increasing. Power hours this last quarter were about 21 billion hours up by 14% again, year over year, and it was also up quarter over quarter.
We can see that the power world is definitely still growing. Average revenue per user is also increasing by around 34%, and now they are around $ 42.91 per user, which I think is an insane number. Roku is one I like very much because this is a company like hey, it does not matter who the true streaming winner will be, it will most likely be here.
Here’s a perfect example of how their operating system works. Disney (HAZE 1.41%) for example, pay for some advertising space where they recently announced the movie Turning Red. Obviously Disney pays Roku to post this on their website. This will now lead to even more registrations for the streaming platform.
Roku also builds its own original content and collaborates with other partners to increase the content of the Roku channel. Again, I think we’ve seen a lot of negative news about the advertising market in the last week. I know Snap (SNAP 5.74%) released it, I think last Monday, released the SEC file that they would not meet the lavender guidance for their latest earnings, which I think they presented about a month ago. This cost a lot of these AdTech companies to drop.
I think Roku is one that, as I mentioned, the streaming market continues to grow, no matter who the winner is. Since we currently have a lot of competition in this area, these companies will of course focus on advertising and ensure that they get many viewers right now. Roku, I think, looks pretty impressive right now, and their income was also pretty strong.
Travis Hoium: Correct me if I’m wrong here, but part of the positive thing about Roku is that they can only be a Disney + retailer. I think it has been an interesting dynamic change that I have taken the time to wrap my head around Netflix (NFLX 2.83%)for example, always wanted to take 100% of the income or as close to 100% as possible of whatever the monthly fee was.
A company like Disney and HBO [a part of Warner Bros. Discovery (WBD 1.75%)] are much more used to the package model where they feel good about being part of a Roku package, as long as Disney + or HBO Max are part of that package, that main package. We may see different models where you might buy all your content from Roku and I buy all my stuff from apple (AAPL 2.40%)and we both use Disney +.
I just think it’s worth pointing out. The appreciation at one point was very high when you think they are going to be a power giant and an advertising giant. But if you think of them as just a distributor, I think it’s a very compelling part of their business model, because it is, I mean, they have the business for it. They are on every TV. As if you can not get away from them. [laughs]