Roku Inc: Tech Stock Up 424% in 2019, Still Has Massive Upside

Roku Inc Continues to Soar, Topping Even Our Wall Street Busting Forecast

Roku Inc (NASDAQ:ROKU) continues to ignore the bearish sentiment that has been blocking many tech stocks from trending higher. The Los Gatos, California-based tech stock is up an amazing 424% in 2019.

Many Wall Street analysts had been saying that ROKU stock was too hot and primed for a big correction. That hasn’t happened though. In fact, the stock has been climbing higher all year.

We last looked at Roku Inc back in June. At the time, the company’s share price was up 212% year-to-date and Wall Street was telling investors they needed to seek shelter. I said the opposite because the supporting data looked solid and, at the time, I forecast a near-term gain of about 30%.

Even my aggressive prediction was a little too conservative. Since then, Roku shares have advanced by about 72%, hitting a new 52-week intraday high of $156.59 on September 3.

Why all the love? This company keeps giving investors what they’re looking for: strong back-to-back financial results and a strong outlook.

Wall Street continues to see more downside with Roku shares though. Of the 15 analysts providing a 12-month forecast, the median target is $120.00, with a high estimate of $155.00 per share. The median estimate is a decrease of approximately 29% from the current price of $168.91.

Investors are a little unsure about where Roku’s share price is going; almost 7.6% of the company’s outstanding shares are shorted.

Still, we see ROKU stock climbing higher, with a 12-month price forecast of $195.00, which suggests a 15.5% upside from the current price.

ROKU Stock Overview

Roku is a video streaming company with its own proprietary operating system (OS). The company makes streaming players that connect to TVs, including its own “Roku TVs,” which have built-in streaming services. (Source: “How it Works” Roku Inc, May 8, 2019.)

The company also operates its own “Roku Channel,” which provides free streaming TV and movies. All that helps draw in advertisers, content publishers, and TV manufacturers.

While the streaming environment is crowded, one study showed that Roku is the top streaming platform in the U.S. when it comes to hours streamed. Another study showed that Roku captured 39% of the country’s entire streaming media player installed base in the first quarter of 2019. (Source: “Roku Q2 2019 Shareholder Letter,” Roku Inc, August 7, 2019.)

And its audience has been getting larger. In July, the Roku OS powered 41 million over-the-top (OTT) devices and smart TVs in the United States. That number is 36% higher than its closest competitor.

In the recently completed second quarter, Roku saw strong growth in unit sales for Roku TVs and players. Also, in the first half of 2019, the company increased its market-leading position for smart TV OS licenses, with Roku TV representing more than 33% of all smart TVs sold in the United States.

It doesn’t hurt that Roku has been selling several new Roku devices, including audio products, at Walmart (NYSE:WMT). This is in addition to the Roku TVs and players already sold at Walmart.

(Source: “Roku, Inc. (ROKU),” Yahoo! Finance, last accessed September 4, 2019.)

In the early part of 2019, ROKU stock benefited from the broad-based optimism we like to call the “January Effect.” That momentum continued thanks to strong back-to-back-to-back financial results.

The stock advanced more than 20% after Roku reported strong financial results for the fourth quarter of 2018 in late February, and for the first quarter of 2019 in early May.

Then, in the days immediately after the company announced its second-quarter results in August, ROKU stock soared approximately 45%. It has since built upon those gains.

Chart courtesy of StockCharts.com

Q2 Revenue Up 59%, Platform Revenue Increases 86%

On August 7, Roku announced that revenue for its second quarter, ended June 29, increased 59% year-over-year to $250.1 million. Its platform revenue was up 86%, at $167.7 million. Gross profit was up 47% year-over-year. (Source: Roku Inc, August 7, 2019, op. cit.)

Roku ended the second quarter with $387.0 million of cash, cash equivalents, restricted cash, and short-term investments.

Furthermore, Roku’s number of active accounts surpassed 30 million for the first time, with 1.4 million new customers added since the previous quarter, bringing the total to 30.5 million. The average revenue per user, meanwhile, surpassed $20.00 for the first time, hitting $21.06 in the second quarter, up by $2.00 from the first quarter of 2019.

Thanks to the company’s strong performance in the first half of 2019, Roku Inc has raised its full-year outlook. It currently expects to report full-year revenue of almost $1.1 billion. That represents a year-over-year growth of approximately 46%. Previous guidance called for year-over-year revenue growth of 40%.

Roku also raised its guidance for total gross profit too, at the midpoint, $485.0 million, up from previous guidance of $470.0 million.

Analyst Take

Few tech companies can claim to be having the kind of year that Roku Inc is having. Thanks to strong quarterly results, ROKU stock has advanced in excess of 420% year-to-date.

While there is concern about how any new tariffs will affect the company’s foreign-sourced products, Roku is taking steps to alleviate any potential stress that this would have on its operations.

Trade war aside, Roku remains an excellent stock. Its technology is becoming more popular and it’s market share has been increasing.