STOCK PICK: A New Wave For Media And Entertainment
This company is an industry leader that is clearly changing the way media is consumed.
Most of you reading this probably own a streaming media device. I'm willing to bet that a majority percentage of you with a streaming media device will likely own a Roku (NASDAQ: ROKU) - whether it be the Roku Express, Roku Ultra, Roku Premiere, the Roku Soundbar or Streambar, or even a Roku TV. Roku has built a major brand and created an industry-leading product that is changing the media and entertainment industry for the better.
Roku Company Overview
Roku is the leading provider of streaming media hardware and software worldwide. Their products include streaming media devices such as the Roku Express, Roku Express Plus, Roku Premiere, Roku Soundbar, Roku Streambar, Roku TV and the Roku Channel.
Roku makes money via product sales as well as selling advertising space on its platform. While Roku has some pretty stiff competition such as Apple TV and the Amazon Fire TV, perhaps a major benefit of Roku is that it's a universal platform for all devices and focuses just on its streaming media players and platform.
In Roku's own words:
"Roku pioneered streaming to the TV. Our mission is to be the TV streaming platform that connects the entire TV ecosystem around the world. Today, Roku streaming devices are used by millions of consumers in North America, Latin America and in parts of Europe including the UK, Ireland, and France. We connect users to the streaming content they love, and we enable content publishers to build and monetize large audiences and provide advertisers with unique capabilities to engage consumers. Roku is uniquely positioned with its sophisticated TV streaming platform and growing scale. The company operates the No. 1 TV streaming platform in the U.S. as measured by hours streamed (Kantar 2020)."
Roku.com1
Why Invest in Roku?
We're currently in a unique market - one that has just gone through the ringer of a global pandemic, followed by other major economic scares such as failing banks. All of which has impacted all companies, and only the strong will whether the storm. Roku happens to be one of those strong companies that has whethered the storm relatively well. After much research and hours of bingeing on Netflix and other addicting streaming media apps (with my Roku Soundbar of course), here are the reasons I believe Roku is a great long-term investment.
Financials
A sound financial foundation can indicate a great potential investment opportunity - and Roku checks all the boxes I like to see. Some of them include the following financial highlights: (financials as of the time of this writing)
Total cash on hand at $1.63B - More than double the amount of debt it has.
Total debt at $641.56M - Less than half of its total cash on hand.
Levered free cash flow of $82.15M (ttm) - Lots of available money to reinvest in research and development, marketing, product dev, etc.
Total revenue of $3.13B (ttm)
Market Cap $7.85B - A relatively small company with lots of room to grow
Opportunity
Market Opportunity #1: There is a vastly growing trend of businesses buying ads on streaming media platforms like Roku as compared to traditional tv ads. This introduces a continually growing market opportunity for Roku.
Market Opportunity #2: I like to compare companies to major players in the industry or related industries. For Roku, I look at Netflix (seeing it was a spinoff of Netflix anyway). As of this writing, Roku is worth about $7.85 billion, and Netflix is worth $162.94 billion and growing. If Roku grows to anything the size of Netflix, we're looking at possible 20x growth!
Leadership
Their current founder and CEO is Anthony Wood - a serial entrepreneur with a history of success and innovation. Anthony was originally part of the Netflix executive team and spun off his idea to build a streaming media platform. As of right now, 84% of employees approve of Anthony Wood as the CEO.2
As a loyal customer of Roku, I own many of their products, most notably the new Roku Soundbar, a modern soundbar with a Roku streaming media player built in. The product is phenomenal, and the platform is simple and easy to use. However, there is a reason they hold over 43% of the smart TV operating system - because their product is the best.
In short, they have sound financials, growing revenue, a highly innovative CEO with a history of success, and an exceptional product. All of this spells out a great investment opportunity.
Roku's Industry Moats
If my research shown in the fundamental analysis above isn't enough to convince you, consider these additional reasons to invest in Roku:
The Roku Channel: Roku has its own channel - The Roku Channel - that provides free and premium TV. This channel currently reaches millions of people and is now offered on other devices like the Fire TV and Apple TV via AirPlay.
Competitive advantage: Roku has multiple competitive advantages, with two major ones being its universal approach to streaming media and its exclusive TV manufacturing partnership deals in which manufacturers build their TVs with a Roku device built-in.
First-mover advantage: While streaming media isn't totally new since the age of the internet, Roku is the pioneer of an actual streaming media device for television and movies.
Disruptive growth: Growth supported by growing revenue and strong financials often indicates that growth will likely continue. While many may start saying Roku is overpriced, keep in mind that Amazon was considered "overpriced" years before it reached a $1 trillion valuation. Bet on the winners, not the losers!
Strong brand: What started as a cheap option to stream TV and movies seamlessly has grown into the go-to product that provides high-class media players, soundbars, and a data-driven technology platform - all of which have built powerful brand equity for the name Roku.
Industry Leader: Roku continues to be the #1 selling smart TV operating system in the U.S. with a current market share of 43%.3
Competitors
Roku's current competition includes:
Amazon (NASDAQ: AMZN) - Amazon Fire TV
Apple (NASDAQ: AAPL) - Apple TV
Google (NASDAQ: GOOG) - Google Chromecast
Netflix (NASDAQ: NFLX) - Netflix's streaming platform
Nvidia (NASDAQ: NVDA) - Nvidia Shield streaming media player
When your competition includes at least three trillion-dollar companies, and you're winning, that can pose both a major threat and a great success. Something to surely keep an eye on should one of those behemoth companies take charge.
Risks
With every investment comes risk. Among them may be reasons some might balk at investing in Roku. Consider the following risks:
Competition: Roku's biggest risk is its competition from Amazon's Fire TV and the Apple TV. When you're doing amazing things like Roku, there is a risk that one of the "Big Dogs" like Amazon, Google, Apple, Facebook, or other major tech companies may come in and still their market with an eye-opening product.
International expansion: While this could be seen as both a risk and an opportunity, expanding internationally comes with its obstacles, including legal issues, market acceptance, more competition, etc.
My Opinion
You're probably aware by now that I am very bullish on Roku, and I own long positions in the company's stock. I see the rewards being far greater than any potential risks, not to mention I am a happy and loyal Roku customer. So for me, Roku is a strong buy for long-term investors.