Investing demands a balancing act between risk and reward, stability and growth, and tested results versus future potentiality. Amidst the multitude of investment options, growth stocks emerge as tantalizing prospects owing to their ability to surpass market averages. Presently, Roku (NASDAQ: ROKU) stands out as a widely misconceived growth stock that warrants earnest investor attention.
A Closer Look at Roku
Roku has etched out a highly lucrative niche for itself in the ever-expanding media streaming sector, arguably the cornerstone of modern media consumption.
The company has been a fixture in this arena from the inception—originally a segment of Netflix (NASDAQ: NFLX), Roku produced the earliest set-top boxes for video streaming and remains at the market’s vanguard in 2024. According to data analysts at Pixalate, devices powered by Roku’s streaming platform software commanded a 51% share of the global connected TV (CTV) market in the third quarter of 2023.
After a few quarters of stagnation, Roku is once again amassing greater revenues. Fourth-quarter sales surged by 14% year over year to $984 million, propelling Roku’s financial robustness, underscored by $176 million in free cash flow.
Moreover, Roku continued to attract new users, even amidst the turmoil of economic uncertainty. The company amassed a net addition of 10 million active user accounts over the past year, culminating in a staggering total of 80 million accounts. Concurrently, the platform’s streaming hours soared by 21% during this period, emblematic of both growth and heightened user engagement.
With an eye to the future, Roku has set sanguine goals, intending to sustain its revenue growth and fortify its free cash flows. Its guidance anticipates a focus on long-term profitability, a potentially reassuring prospect for investors. Recent strategic maneuvers in this direction include an assertive cost-cutting initiative and minimal price adjustments following the trials of inflation.
Despite acknowledging the challenges posed by an unpredictable macro environment and a convalescing ad market, Roku maintains an optimistic outlook, anticipating a year-over-year sales upswing of approximately 20%, totaling around $850 million in 2024.
The Long-Term Perspective
Despite these robust financial indicators, Roku’s stock plummeted by 24% at the close of the market on Friday, following its earnings release on Thursday evening. This seemingly paradoxical stock price drop stems from market volatility and investor sentiment, potentially heralding an inconspicuous investment opportunity.
The only substantive rationale to divest from Roku shares at present would be to capitalize on recent price gains—closing Thursday’s trading session with a 132% surge from the year-end 2022. However, doing so may result in forfeiting future potential, an unwise move in my estimation.
For the long-haul investor, Roku’s strategy aligns remarkably with industry trends. The drift toward digital media consumption represents a tidal wave Roku is uniquely poised to ride. CEO Anthony Wood consistently emphasizes to investors that all media viewing and advertising will inevitably transition to the digital realm, and Roku is primed to capitalize on this fundament metamorphosis.
Last week’s stock price descent echoes Netflix’s shares in 2011, when the company pivoted its streaming service into a legitimate business, phasing out its old DVD-mailer arm. This seismic transition is often remembered as ‘the Qwikster debacle,’ preceding a colossal 6,000% surge in market returns.
However, Netflix’s stock plunge followed a tenuous and potentially perilous strategic shift, whereas Roku’s stock depreciation ensued after a steady earnings report with promising guidance. There is no radical new stratagem on the horizon for Roku.
From my vantage point, Roku’s stock endured a drastic 24% descent without justifiable cause. For investors possessing $1,000 to deploy, such junctures purvey prospects to acquire shares in a robust company at a discount. In the current climate, Roku presents a compelling case for investment if one is contemplating allocating funds to a growth stock.
Investing in Roku: An Attractive Proposition
With a solid foundation, a discernible growth trajectory, and a market position suggestive of resilience and adaptability, Roku’s stature as a growth stock positions it to yield considerable returns over time. The path ahead may be fraught with bumps, but Roku’s core business remains unblemished. Diligence is imperative, as with any investment, but Roku’s recent performance and future prospects render it a fitting candidate for one’s investment portfolio.
Personally, I intend to double down on my Roku investment momentarily, provided I stop ruminating about it long enough.
Should you invest $1,000 in Roku right now?
Prior to delving into Roku stock, it’s prudent to consider the following:
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Anders Bylund holds positions in Netflix and Roku. The Motley Fool has positions in and recommends Netflix and Roku. The Motley Fool maintains a disclosure policy.