Roku (NASDAQ:ROKU) was out of favor on Wall Street for a while, but now, the company is a streaming market standout that’s getting a lot of positive attention. I am bullish on ROKU stock because, even while the company is still unprofitable, Roku is keeping users on its platform and improving its financials in 2023.
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Based in California, Roku sells a video streaming platform and related devices. Needless to say, Roku has to deal with fierce competition from streaming market rivals like Netflix (NASDAQ:NFLX). Roku probably isn’t the number one choice for many streaming content consumers, so the company has had a tough time convincing analysts and investors of its value.
Roku’s War on Traditional TV and Comeback Story
“Roku is growing viewers and hours, while traditional pay TV continues to erode.” That’s a quote from Roku’s second-quarter 2023 shareholder letter, and it sums up the streaming company’s ongoing battle against network and cable television.
Streaming companies may be winning that battle generally, but they also have to battle against each other in the 2020s. Hardly anyone would call Roku the biggest winner in the streaming space, and ROKU stock has declined significantly from nearly $500 in 2021 to less than $100 now.
Anyone who short-sold ROKU shares yesterday is probably regretting it today, however. The stock is currently ~25% higher at the time of writing, and it’s not difficult to figure out why traders are furiously buying the shares.
Roku’s Q2-2023 results provided clues that the company may be in the beginning stages of a huge comeback. The company’s top and bottom-line results indicated an improvement while also exceeding Wall Street’s expectations.
Here’s the lowdown. Roku posted revenue of $847 million, up 11% year-over-year. That’s pretty good, considering the still-high inflation that persisted during the second quarter. Also, this result beat analysts’ consensus revenue forecast by $72.47 million.
So far, so good. The real headline-grabber, though, was Roku’s quarterly EPS of -$0.76. Now, that might not sound great at first glance. However, it’s better than Roku’s year-earlier quarter EPS of -$0.82. Best of all, this result easily beat Wall Street’s call for EPS of -$1.26.
There’s a pattern starting to form here, as Roku’s most recent quarterly EPS results have been moving closer to break-even. This isn’t to suggest that Roku will necessarily be profitable in the next quarter or two, but it’s a possibility, and maybe the company can at least get closer to breakeven soon.
Roku’s Users are Growing and Active
Even beyond the financial stats, there’s data to show that Roku’s user count is increasing and, just as importantly, those users are staying on Roku’s platform. Possibly, investors took notice of these data points when they bid up the ROKU share price today.
As it turned out, Roku grew its total active accounts by 1.9 million on a quarter-over-quarter basis in Q2 2023 to 73.5 million. Not only that, but Roku’s total streaming hours increased by 4.4 billion hours year-over-year to 25.1 billion.
Again, Roku’s press release emphasized its war against cable television. The company stated, “By the end of 2023, the number of U.S. households with cable TV packages is forecasted to be down 40% from a decade earlier (according to Statista).” If Roku can continue to gain users and keep them on its platform, this could indeed be another sign that streaming businesses are crowding out traditional television companies.
Is ROKU Stock a Buy, According to Analysts?
Turning to Wall Street, ROKU stock comes in as a Moderate Buy based on six Buys, five Holds, and two Sell ratings. The average Roku stock price target is $72, implying 15.5% downside potential.
If you’re wondering which analyst you should follow if you want to buy and sell ROKU stock, the most accurate analyst covering the stock (on a one-year timeframe) is Jason Helfstein of Oppenheimer, with an average return of 71.32% per rating and a 73% success rate. Click on the image below to learn more.
Conclusion: Should You Consider ROKU Stock?
I don’t always lean bullish on a stock after it surges. However, Roku’s results are encouraging, and the company, along with Netflix and other competitors, poses a real threat to network and cable television content providers.
Hence, Netflix stock isn’t the only way to participate in the streaming market’s expansion. I recommend taking a close look at Roku’s excellent quarterly results and then considering a position in ROKU stock for a long-term comeback play.
