Microsoft licenses its operating systems to manufacturers of computers back in the day. Today, the name Microsoft is synonymous with PCs and laptops. Just like Microsoft is synonymous with PCs and laptops, Roku is synonymous with smart TVs.
Roku was founded in 2002 is taking advantage of the cord cutting trend. According to Roku’s most recent shareholders’ letter, “roughly 50% of U.S. cord cutters are Roku customers.
Roku offers an easy way to access all the top streaming services. Roku estimates that more than a third of all smart TVs sold in the U.S. have Roku’s operating system built in. The list right now includes TCL, Insignia, Sharp, Hisense, Hitachi, RCA and Philips. Roku’s free channel has also secured a partnership with Samsung.
Roku is well-positioned for the streaming war. As the streaming war rages between Netflix NFLX, Amazon AMZN, Disney DIS and others and more people spend more time streaming their favorite shows on more services, Roku makes more money. So no matter which streaming service comes out on top, Roku should benefit.
It’s the reason why Roku was up as much as 400% this year at one point. In just under a year, Roku went from a small/mid cap stock to a large-cap. The firm’s sales growth has been accelerating with year-over-year growth of more than 50% for the past 3 quarters. In addition, Roku just reported its 8th straight top and bottom-line earnings beat. However, on the news the stock sold off. Wall Street will tell you their valuation got to rich, but a month ago I talked about where the chart suggested the Sellers were.
Although I thought the weekly demand would have been a better buy, price reacted to the monthly demand at $95. Thus, the chart suggests price will rise to the daily supply at $148.
It’s not a coincident, price sold off at the daily supply at $148, the news just served as a catalysts. Just another example of why the Markets are not random.
So where does Roku go from here?
Highlighting how well the company is monetizing its platform, Roku’s average revenue per user over the trailing 12 months is 40% higher than Netflix’s most expensive streaming plan. What’s particularly surprising, however, is that current trends indicate there’s still plenty of upside left for this metric to move even higher.
In Roku’s third-quarter update, management said its ARPU was $22.58. With 32.3 million active accounts (1.7 million of which were added in Q3 alone), this robust ARPU has helped Roku deliver $633 million in trailing-12-month platform revenue.
While Roku does benefit from subscriptions to third-party streaming services on its platform, advertising is the company’s most important growth driver. In fact, monetized ad inventory on its platform more than doubled year over year in Q3 — a trend that has been consistent with recent quarters.
Looking ahead, Roku believes this is just the beginning when it comes to advertising spending on its platform. Only 3% of TV advertising budgets are currently spent on connected TV, yet connected TV accounts for 29% of U.S. viewing, Roku’s general manager of platform business, Scott Rosenberg, noted in Roku’s third-quarter earnings call, citing research firm Magna Global.
Thus, the chart suggests to go long at the daily demand at $107 and ride price back to the daily supply at $148.
This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.