Is Roku Breaking Out?
Weirdly enough, Roku started out as a project within Netflix, when the streaming giant decided it didn’t want to compete with Apple and Amazon in the TV hardware market.
Since then Roku has gone on to become a leading player in the connected TV market, featuring sports, live news, movies and a vast array of content.
Where it makes most of its money is its Platform play but the Player segment, which features the sale of streaming devices, is growing too. If you’re not already familiar with it, Platform includes advertising, content distribution, and subscription services.
But enough of the bird’s eye view, is Roku finally a buy again?
Key Points
- Roku appears to be technically breaking out right now above a downtrending resistance line.
- Fundamentally, Roku is undervalued relative to analysts estimates.
- Once momentum traders get on board the bullish trend, even fair value may be eclipsed.
Is Roku Breaking Out?
Perhaps the most compelling reason to buy Roku now is it appears to be breaking out above a long-term downtrending resistance line.
But this isn’t the only reason to consider a purchase of Roku now.
The global streaming market is booming and according to Grand View Research, it is expected to reach $223.98 billion by 2028, growing at a CAGR of 21.0% through 2028.
Roku has been growing revenues rapidly over the past few years. In 2023, it reported annual revenues of $3.1 billion, up from $2.6 billion in 2022, a year-over-year growth of 19.2%.
The growth is primarily driven by the Platform segment, which accounted for approximately 86% of total revenues. Revenues in this segment increased by 25% year-over-year, reflecting the hike in advertising and subscription services.
In 2023, Roku’s advertising revenue grew by 35%, and the company continues to innovate with new ad products and formats to capture more ad spend.
Internationally, the company is expanding too. Last year, Roku launched its streaming devices in several new international markets, including Brazil and the U.K. International revenues grew by 30% year-over-year, highlighting the potential for further growth outside the U.S.
How High Could Roku Go?
If analysts are to be believed, Roku can go as high as $73.18 per share while a 5-year discounted cash flow forecast analysis puts fair value up at around $68 per share.
The odds are Roku will recover to higher prices and hit its intrinsic value given that the platform had 75 million active accounts, a 15% increase from the previous year. Users streamed a record 25.1 billion hours of content in Q1 2024 alone, demonstrating high engagement levels.
Plus, Roku has established strong partnerships with major content providers and TV manufacturers. In 2023, for example, it expanded its partnership with TCL, one of the largest TV manufacturers globally, to integrate Roku’s operating system into more TV models.
All in all, Roku has the potential to rise by as much as 21% to fair value but don’t bet against even higher prices if momentum traders jump on board too following the technical breakout.
