Streaming Stock's Revenues Quadrupled, But Shares Dropped 35% - Analyst Thinks He Knows Why

Streaming platform company Roku Inc ROKU has watched its revenue soar over the past five years as the company diversified into new areas and markets. While revenue went up, the stock price has declined, even after recently beating analyst estimates for earnings per share and revenue in the fourth quarter.

What Happened: Roku passed several milestones in its fourth-quarter financial results, likely helping with analysts' bullish take on the stock.

The company passed the $1 billion milestone for platform revenue in the quarter, Roku's first quarter to hit the milestone. Roku also reported that its total revenue hit $4 billion for the full fiscal year – a company first.

In fiscal 2019, Roku's annual revenue hit $1 billion for the first time, a milestone highlighted by Alex Morris in The Science of Hitting newsletter. Roku ended 2019 at around $134 per share and today, despite the higher revenue, trades at around $89.

Helping to boost revenue include items like the company's active accounts up around 145% to ~90 million and a higher per user monetization of ~$42, which is up around 80% over the last five years.

"I think some of the optimism that previously accompanied Roku's stock – not to say there's no optimism embedded into today's valuation – was reflective of their global ambitions," Morris said.

Morris said Roku CEO Anthony Wood previously highlighted the streaming global opportunity of one billion households worldwide, which may have prompted optimism for shares previously.

Today, Roku receives the majority of their revenue from the United States and Canada. Morris said this could be why the investment case for Roku has shifted and evolved over the last five years.

"The focus is shifting to the economic opportunity that exists within the business as it is today: the value that Roku can generate from ‘programming' the TV home screen for tens of millions of U.S. households."

Morris said the new key performance indicators are effective monetization like revenue per hour of platform viewership and growth of the company's ad-supported The Roku Channel. Both of these figures have shown strength in recent quarters, Morris added.

The Roku Channel has doubled its market share of U.S. TV time in the past year to 2.1%, ahead of Paramount+, Peacock and Max.

Read Also: Roku Analyst Sees 25% Upside As TV Ad Dollars Go Digital

What's Next: Morris said one of the key questions moving forward is whether Roku can continue to drive its operating costs lower

"Roku has made progress against its financial objectives, most importantly on Platform revenues and OpEx efficiency," Morris said.

He added that said sustaining U.S. leadership and improving monetization are other key areas to watch going forward.

"Overall, I'm optimistic that Roku is on the necessary trajectory to achieve those outcomes in the years ahead."

ROKU Price Action: Roku stock is down 0.9% to $88.06 on Monday versus a 52-week trading range of $48.33 to $104.96. Roku stock is up 37% over the last year.

Read Next:

• Roku Surpasses 90M Streaming Households in Early January 2025: What’s Going On?

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