Roku Fundamental Analysis
Roku Fundamental Analysis. The Company, a prominent player in the TV streaming platform industry, holds a leading position in the United States, primarily based on the extensive number of hours streamed by users. As of December 31, 2022, the company boasted 70 million active accounts, marking a noteworthy net increase of 9.9 million accounts since December 31, 2020. Various factors enhanced this growth, including the sale of standalone streaming devices, strategic partnerships with renowned TV brand partners like TCL, JVC, Sharp, and other prominent television manufacturers that license the Roku OS to produce and market Roku TV models. Additionally, Roku benefits from licensing its Roku OS to specific service operators.
Roku’s commitment to innovation in the Devices category is evident in its TCL Roku TV 6-Series, which received the prestigious CNET Editor’s Choice award in 2022. It was hailed as the “best TV for the money” for the fifth consecutive year.
Furthermore, Roku has experienced a surge in advertising-driven revenues, primarily due to the proliferation of monetized video ad impressions, especially on The Roku Channel, which has gained significant popularity. This growth is fueled by the increasing interest in streaming by traditional TV advertisers and ongoing investments in Roku’s OneView ad platform and broader advertising technology capabilities.
Business Segments.
In terms of financial performance, Roku reported robust revenues of $3.1 billion in 2022. The company operates through two distinct segments: Platform and Player. The Platform segment generates revenue through advertising sales, subscription and transaction revenue shares, the sale of branded channel buttons on remote controls, and licensing agreements with TV brands and service operators. In 2022, Platform revenues recorded an impressive 20% year-over-year growth, amounting to $2.7 billion. On the other hand, the Player segment derives its revenues from the sale of streaming players through various retail distribution channels, including renowned physical retailers like Best Buy and Walmart, as well as online retailers, primarily Amazon.
Competitors.
Despite its remarkable success, Roku faces fierce competition from established local traditional pay TV services and products. Competitors like Amazon, Apple, and Google offer their TV streaming devices, which directly compete with Roku’s streaming players and Roku TV. Additionally, Google and Amazon pursue licensing agreements for their respective operating systems, integrating them into smart TVs. This competitive landscape poses both challenges and opportunities for Roku’s continued growth and market dominance.
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According to Roku Fundamental Analysis, we think that there are several reasons to buy the stock.
Acquisition of Dataxu.
Roku’s purchase of the demand-side platform Dataxu is strategically positioning the streaming service provider to intensify its competition for advertising revenue as it transitions from the traditional $70 billion linear TV market to the digital platform. This acquisition is set to improve and streamline the services offered to advertisers on Roku’s advertising platform. Dataxu’s software will empower marketers using Roku, allowing them to automate the procurement of video advertisements across various platforms, encompassing online video, TV, and over-the-top (OTT) media, all within a user-friendly self-serve interface on Roku’s owned and operated properties.
Strenght of the Brand.
Roku brings substantial value to TV brands by offering them several advantages, including reduced hardware costs, access to a vast content library, minimal return rates, seamless automatic software updates, extensive retail distribution channels, and the strong recognition of the Roku brand. Their wide range of television sizes and features at affordable price points has broad appeal across various consumer segments. Roku has also forged partnerships with numerous TV brands and retailers, such as Walmart’s in-house brand, onn. In 2022, the collaboration with Walmart was extended to include onn Roku TV models in Canada.
Additionally, Roku expanded its presence in Mexico by adding three new Roku TV licenses, resulting in a total of 12 partners offering an extensive selection of Roku TV models. In Brazil, AOC introduced a new lineup of 4K Roku TV models, while Semp TCL unveiled six new Roku TV models. Roku made its mark in the UK with RCA entering the market with new Roku TV models, and TCL launching the UK’s first-ever QLED Roku TV model. Furthermore, Roku extended its Roku TV program with TCL and Metz in Germany and with TCL in Australia, further strengthening its global reach.
Roku Platform.
Roku plays a pivotal role in connecting content publishers with a vast user base, offering a wide range of promotional tools to enhance engagement and expand their reach. The introduction of third-party streaming channels, coupled with ongoing investments in The Roku Channel, significantly contributed to the growth in user engagement throughout 2022. Furthermore, the robust expansion of popular streaming services like Disney+ (launched in late 2019), along with the availability of NBC Universal’s Peacock and HBO Max, followed by the introduction of Discovery+ on the Roku platform, should further drive user growth in the immediate future. These services have thrived on the Roku platform, benefiting from its extensive and engaged user base, as well as its effective promotional capabilities.
Enhanced Liquidity.
Roku’s enhanced liquidity position presents an appealing prospect for investors. As of June 30, 2023, the company held cash and cash equivalents amounting to $1.75 billion, compared to $1.63 billion as of March 31, 2023. This bolstered liquidity is expected to support Roku in meeting its working capital needs effectively. Additionally, as of June 30, 2023, Roku carried no long-term debt, in contrast to total debt of $63.3 million recorded as of March 31, 2023. This absence of long-term debt further strengthens Roku’s robust cash balance.