Roku (ROKU) sells for about $145 per share. This stock has been the talk of Wall Street as it recently reached an all-time high. Cord-cutters far and wide are flocking to Roku and online streams as opposed to traditional cable television.
All in all, Roku’s stock has increased fourfold this year alone. The question begs: isn’t it time for Roku profit-takers to sell some of their shares and ultimately send the stock price downward? Let’s try to predict how Roku will fare in the months ahead.
Roku devices turn regular TVs into smart ones that connect to the web for streaming content. The company also provides streaming services outside of its Roku device. If you are looking to capitalize on the cord-cutting movement, Roku is a suitable place to park your money. However, there is no guarantee Roku will still be raking in the money years or decades down the line as the streaming options expand exponentially.
Roku’s revenue spiked nearly 60% this past quarter. Though Roku still sells hardware, much of its revenue stems from the platform that allows for an ever-expanding number of streams. The company has 30.5 million accounts it categorizes as currently active. Active users spent in excess of nine billion hours streaming entertainment through Roku. The average Roku user spends three hours each day watching streaming content.
It is particularly interesting to note the average revenue per streamer is increasing faster than Roku’s customer base. Roku executives are doing a fantastic job of monetizing the service through targeted ads and increased customer engagement. All the numbers indicate the average revenue per customer will continue to spike in the quarters ahead. As a result, Wall Street analysts are setting $150 price targets for Roku.
Are Investors Also Customers?
Chances are you know several people who own a Roku. The diminutive device is cute, takes up little space, and typically works without flaw. However, if you were to poll those in your social and professional circles as to whether they actually use their Roku with any sort of regularity, many would testify they do not.
Part of the problem is content accessible on Roku is limited compared to that available on cable TV and Netflix. Fire up your Verizon Fios, Cox Cable, Spectrum TV service, or Netflix and you will have a seemingly endless number of selections to choose from for the evening’s entertainment. Roku certainly provides a good number of options, but those are less numerous and are often lower in quality than the entertainment selections available through traditional cable and even Netflix’s gigantic library of streaming content.
Zeroing in on Families
Roku’s recent pivot toward family-friendly content is likely a response to Disney’s uber-affordable streaming service. Kids and families can now choose between streaming Disney content and streaming the countless family-friendly programming options available through Roku. The goal is to maximize the viewership of families, so its partners’ ads are shown to multiple people per viewing session.
This is not to say Roku is transitioning to a service that only airs G-rated content. Roku also provides customers with an expansive number of premium services that can be accessed in mere seconds from its intuitive platform. However, from an investing perspective, capturing the eyes and ears of youngsters and parents is important, partially because these individuals tend to watch Roku while in the same room so they will be exposed to the same ads at the same time. The launch of Kids & Family on The Roku Channel combined with additional parental controls over Roku content will make Roku that much more appealing to youngsters and parents alike. Advertisers will give even more consideration to advertising through Roku simply because the streaming service provides an opportunity to connect with youngsters who will grow into the consumers of the future.
Buy, Sell or Hold?
Hold or consider selling. As noted above, it is only a matter of time until current Roku investors take their profits – or at least a portion of them – off the table. Roku is certainly overpriced, especially when you look at its P/E ratio, yet the same can be said of numerous other high-flying tech stocks that just keep soaring. To the dismay of traditional investors, the bulk of the new entrants to the investing community do not care about P/E ratios and valuations. As a result, we see stocks like Roku skyrocket even though the business model might not prove sufficient in the future.