Roku Is Ready For The Next Level

Roku Inc ROKU has been on fire due to its impressive revenue and account growth rates that were additionally fueled by lockdowns and new streaming entrants. Besides ending a record year with a profitable quarter despite Wall Street expecting a loss, there's more to come as advertising dollars are shifting from linear television to streaming. The rise of streaming services on Roku like Walt Disney Co's DIS Disney+, AT&T Inc.'s T HBO Max, and NBC Universal's Peacock will only continue to drive the cord-cutting trend.

Roku's growth prospects are now even more favorable as dominant streaming services such as Netflix Inc NFLX showed strong growth trends, despite the emergence of Apple Inc's AAPL Apple TV+ and Disney's + that managed to beat its four-year goal in just 14 months by reaching 94.9 million subscribers. As the cord-cutting trend continues and Roku continues its international expansion, any concerns regarding its valuation should begin fading away.

Roku Rides Streaming Wave During The Fourth Quarter

For the fourth quarter, the streaming company reported a record revenue of $649.9 million as it shot up 58% from a year ago. Income from operations swung from a loss of $17.4 million in the year-earlier quarter to a profit of $65.2 million, or 13 cents a share, whereas Wall Street analysts had expected a net loss of 5 cents a share, according to FactSet. 17 billion streamed hours in the quarter contributed to more than 58 billion hours in 2020, with both figures representing a 55% YoY increase. The company's interface is in 38% of all smart-TVs made in the U.S. The company does not break out a specific line item for ad revenue, but total platform revenue which includes advertising soared 81% in the quarter.

2020

Roku has been one of the biggest beneficiaries of the pandemic lockdowns. Over 2020, approximately 14.3 million active users entered Roku's kingdom, making a total of 51.2 million active accounts at year-end, which is a YoY increase of 39%.

Perhaps the biggest event of 2020 was the long-awaited distribution deal with WarnerMedia for HBO MAX. But Roku also negotiated the acquisition of Quibi's content library that it revealed in January, although it's still unknown when the content will be released. Original content could turn The Roku Channel from the channel users select when they can't find anything good to watch to an appealing streaming destination.

Additionally, the 41% market share of the most-streamed sporting event to date, Super Bowl LV, is merely an additional tailwind for Roku's advertising appeal.

Outlook

Time will tell what the new trends are as COVID-19 recedes. Nevertheless, consumers learned that they can view even the most current theatrical content from the comfort of their own homes. Roku has delivered a blowout quarter and even the fact that total revenue growth slowed between the third and fourth quarter is not a deal-breaker as the holiday quarter gets historically weighed down due to low-margin Roku devices being popular holiday gifts. 

The heart of Roku's success is the higher-margin, its fast growth, and the fact it thrived with new streaming entrants despite analysts mistakenly expecting the opposite. The growing and engaged audience that resulted in 81% platform revenue growth in the fourth quarter makes it obvious why Roku is appealing to both advertisers and investors. More importantly, Roku has plenty of more room to run as it keeps expanding across the globe because streaming is a global opportunity.

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