Roku Inc: What Sell-Off? A Bullish September for This Stock

Roku Inc up 225% Since March, But Still Undervalued

Roku Inc (NASDAQ:ROKU) investors weren’t phased by the September sell-off. While many tech stock took a beating in September, Roku Inc stock rebounded quickly and notched up a new 52-week high.

ROKU stock is actually up 6.7% in September, and it has climbed 25% over the last couple of weeks. Looking further back, ROKU shares have rallied approximately 82% year-over-year, 41% since the start of 2020, and 225% since hitting its March lows.

Big gains, but that growth trajectory shows no signs of slowing down. Thanks to millions of people being quarantined or self-isolating, the company’s streaming units and TVs are flying off the shelves.

As we enter the colder winter months and the coronavirus pandemic ranges on, you can expect even more people to hunker down and watch TV on their “Roku TV” sets. More and more people are also saying goodbye to cable, switching to streaming instead.

In 2019 alone, U.S. satellite and cable TV providers lost an eye-popping six million customers. In just the fourth quarter, 1.5 million subscribers fled and turned to streaming. (Source: “Traditional Pay-TV Operators Lost Record 6 Million Subscribers in 2019 as Cord-Cutting Picks Up Speed,” Variety, February 19, 2020.)

With ROKU currently trading around $189.00 per share, a 12-month stock forecast of $250.00 is not out of the question, implying a 32% gain from current levels.

 Chart courtesy of StockCharts.com

ROKU Stock Overview

Based on the number of hours streamed, Roku Inc operates the #1 TV streaming platform in the U.S.

The company makes streamlining players that connect to your TV. It also sells Roku TVs with different streaming channels preloaded; including Netflix Inc (NASDAQ:NFLX), Cineplex Store, Google Play, and CinemaNow. (Source: “How It Works,” Roku Inc, last accessed September 29, 2020.)

Through Roku, you can access more than 150,000 movies and TV shows from both free and paid channels. It also operates its own Roku Channel. Today, Roku streaming devices are used by millions of customers in North America, Latin America, and parts of Europe.

Roku’s award-winning streaming devices continue to garner accolades and new clients. In CNET’s annual review of streaming devices, Roku won for: Best Streamer Overall, Best Budget Streamer, Best Soundbar-Streaming Combo, and Best Convenience Features. (Source: “Q2 2020 Shareholder Letter,” Roku Inc, August 5, 2020.)

Even before the coronavirus pandemic shut people in, Roku was experiencing strong growth. COVID-19 just made the company that much more attractive.

In its just-completed second quarter, Roku added 3.2 new active accounts, reaching 43 million in total. Streaming hours increased by 2.3 million hours quarter-over-quarter to 14.6 billion, and the average revenue per user was up 18% year-over-year at $24.92.

Strong Q2 Results & Exceptional Account Growth

In early August, Roku announced that revenue for the second quarter advanced 42% year-over-year to $356.1 million. Platform revenue grew 46% to $224.8 million, while player revenue climbed 35% to $111.3 million.

During the quarter, Roku added 3.2 million incremental active accounts, a 43% increase year-over-year, to reach 43 million. Streaming hours increased by 2.3 billion, or 65%, quarter-over-quarter to 14.6 billion. Meanwhile the Average Revenue Per User (ARPU) was up 18% year-over-year at $24.92.

Gross profit was up 29% at $146.8 million. The company reported a second-quarter net loss of $43.1 million, or a loss of $0.35 per share, compared to a second quarter 2019 net loss of $9.3 million, or a loss of $0.08 per share.

Analyst Take

Roku Inc is experiencing significantly increased demand for its streaming products. While this is partly a result of the coronavirus pandemic, it is a trend that has been growing for years. The company delivered strong second-quarter results, including exceptional account growth. It also delivered robust growth in its ad business, at a time when the overall TV ad market has been down. The way people watch TV has changed, and Roku is at the forefront of that renaissance.