Amid the COVID-19 pandemic, it was expected that millions of people staying at home would have preferred low-cost streaming platforms such as Roku (NASDAQ:ROKU) to pass time.
Roku faces competition from streaming service providers
Although Roku is considered to have huge potential there are still a lot of negatives about the stock. Most importantly there is a lot of competition in the streaming space and people who want to stream media could turn to Amazon.com Inc.’s (NASDAQ:AMZN) Fire TV stick or Apple Inc.’s (NASDAQ:AAPL) Apple TV. The only part where there is no competitive moat is from a hardware perspective.
The stock dropped with the recent market plunge and despite rebounding in April it is still off its February 2020 highs. Like most tech stock Roku seems to be overvalued trading at 9.9X sales compared to the S&P 500’s average of 2.3X sales. Analysts are expecting the companies’ losses to continue this year and Consensus Estimates hold for a $1.70 loss per share.
Roku growing its revenue from ads
Despite the negative aspects, there are things worth impressive about this stock. For instance, it’s Roku Channel that is not connected to any particular streaming service makes it appealing unlike Apple TV and Fire Stick. Also, the company is making a lot of revenue from advertising with the Roku Channel enhancing its offering as an advertising platform.
The company has been growing viewership considerably with viewing hours increasing 38% from last year while steaming hours were up over 100% on the Roku channel. Revenue has continued to improve and analysts hold for a 32.4% growth in 2020 and 34% growth on fiscal 2021. It is expected that the company could cut its losses and analysts expects growth in profit of 25.3% in fiscal 2021.
Most importantly Roku is ahead of competitors with ad revenue continuing to grow. In the long term Roku will benefit as advertisers and consumers turn to the platform.