Neil Patel, The Motley Fool
5 min read
In This Article:
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This business has and will continue to be lifted by the growth of streaming entertainment and digital advertising.
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Management expects to achieve positive operating income in 2026, which will be welcome news.
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The market has very low expectations, as the stock’s cheap valuation demonstrates.
Although the market has been bouncing back in the past couple months and approaching its previous all-time high, not all companies are riding the wave. As of June 6, this growth stock is trading an eye-watering 84% below its peak, a record mark that was established in July 2021. At this point, maybe it's too hard to ignore the dip.
Should you buy shares in June and hold them for the next 20 years? Here are some important variables to think about.
The internet has helped to reshape industries, corporate strategy, and consumer behavior. This is evident in the rise of streaming entertainment. It also reveals itself when you look at the digital advertising market.
The business that benefits from both of these secular trends is Roku (NASDAQ: ROKU). It provides users with a single platform that allows them to aggregate all their content. At a time when it seems there's an unlimited number of streaming apps out there, it's extremely valuable to have them all in one place. As such, Roku has top market share among smart TV operating systems in the U.S., Mexico, and Canada. A whopping 40% of new TVs sold in the U.S. during the first quarter came equipped with Roku software.
You couldn't tell by the stock's weak performance, but this company continues to post double-digit growth. Revenue increased 16% in Q1 (ended March 31). This was after the top line expanded by 18% in 2024. At the end of last year, Roku counted 89.8 million memberships, although it has stopped reporting this key metric.
It's worth highlighting that 86% of the company's sales in the first quarter of 2025 came from its platform segment, which makes money partly from advertising. "With more than half of U.S. broadband households and our expanding ad product offering, we provide marketers the reach and visual impact of traditional TV with the performance of digital advertising," the latest shareholder letter reads.
In 2021, Roku generated $242 million in net income. That was a great year, but it was an anomaly. Roku has consistently reported net losses, to the tune of a cumulative $866 million in the past nine quarters. This could change, though, due to expense controls.
