Down 32% from Record Highs Roku Stock Remains a Buy!
September 24 2021 - 10:50AM
Finscreener.org
Shares of online streaming giant
Roku have lost steam in recent times. Roku stock is down 30% from
all-time highs. Despite the recent pullback, it has returned a
monstrous 1,280% since its IPO in late 2017. Valued at a market cap
of $44.6 billion, Roku (NASDAQ: ROKU)
remains a
top long-term bet
for investors, and here’s
why.
Roku will benefit from the cord-cutting
phenomenon
The shift towards online
streaming accelerated at a rapid clip in the last eighteen months
due to COVID-19 which in turn has benefitted Roku, a company that
also acts as a service-agnostic content aggregator. It means Roku
is poised to benefit from the demand for online streaming platforms
as the company’s set-top box and in-built smart TV products are
supported by all content providers.
The large-cap tech stock has lost
steam in recent times after it
reported Q2 results
last month. Roku confirmed that the
number of hours its customers spent streaming in Q2 fell by 5% to
17.4 billion compared to 18.3 billion hours in Q1 of 2021.
Moreover, the number of active accounts soared to 55.1 million
which was an increase of 28% year over year and was the lowest ever
for Roku since its IPO four years back.
As economies have reopened in
major Roku markets, consumer spending has shifted towards outdoor
entertainment activities and this has hurt the company’s growth
metrics in Q2. Further, tech heavyweights including Amazon
(NASDAQ:
AMZN) and Alphabet
(NASDAQ: GOOG)(NASDAQ: GOOGL)
have also announced their intention to provide television
manufacturers with their proprietary smart-TV operating
systems.
But Roku’s long-term prospects
remain solid. A report from Pixalate states that 49% of
programmatic advertisements were on Roku devices in the current
quarter. The research group also expects programmatic ad spending
to rise to $8.7 billion in 2022, compared to just $3.2 billion in
2019.
Roku now aims to expand in other
international markets such as the U.K and European Union as well as
Latin America. It will basically replicate its successful strategy
that entails creating a large user base in a new market with
streaming devices after which it will monetize these
users.
Analysts optimistic about the growth stock
According to Michael Morris from
Guggenheim Partners, Roku stock might touch $395 in the next
12-months which is 20% above its current trading price. Morris
believes the streaming giant is poised to gain rapid traction in
the connected-TV segment, as businesses continue to increase
spending on digital channels. The growth in connected TV is
expected to explode in several international markets.
Company CEO Anthony Wood
explained, “Audiences, content, and advertisers continue their
shift to TV streaming around the globe, and Roku is a key enabler
of this long-term secular trend."
Roku has managed to double its
video ad impressions in Q2 year over year allowing the top-line to
grow by 81% to $645 million. Comparatively, the gross margin rose
by 130% to $339 million.
Roku stock is in fact trading at
a discount of 40% to consensus price target estimates.
Roku stock valuation is a concern
Despite the decline in Roku
shares, the stock is valued at a forward price to sales multiple of
15.6x and 208x forward earnings. Comparatively, its sales are
forecast to rise by 60% to $2.85 billion this year and by 37% to
$3.9 billion in 2022. Analysts also expect the company to narrow
its bottom-line from a loss per share of $0.14 in 2020 to earnings
of $1.64 next year.
While Roku stock is trading at a
premium, its growth forecasts command a lofty valuation. You can
bet on this growth stock if you are bullish on the future of
digital entertainment.
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