Roku’s short but exceptional market history

Roku’s (NASDAQ: ROKU) rise to fame occurred in 2019 after the company produced an 89% return over 2 months (July-September). The company’s stock price then dramatically corrected to $99 before finding a pre-COVID equilibrium at $130. Roku’s growth since IPO to today – is over 477%. Making ROKU an excellent investment in 2017 at $23-$52. Below are the driving factors for ROKU’s astronomical growth over the years.  

  • 1 in 3 smart TV’s sold in the US was ROKU TV’s (2019 data)
  • 2019 Platform Revenue grew 78% Year on Year (YOY) – estimated at $740 million
  • ROKU’s growing user base = 39.8 million (current)
  • ROKU’s diversification of products: streaming services: 1) Video streaming set up box,2) Smart TV’s 3) Roku Platform channel 4) Software products

Roku’s price fell as low as $76 during the initial market crash due to COVID-19. However, has rebounded strongly almost settling at it’s Pre-COVID-19 average.

Can COVID-19 catapult ROKU to new heights?

The coronavirus slingshot is ready to catapult ROKU’s customer base into the stratosphere. The government’s demand for us to “bunker down” will likely send a tsunami of new subscribers and/or smart TV customers towards ROKU. This prospect has re-opened the Roku case files. Intriguing many investors to start testing new market highs for the tech giant. 

Consequently, ROKU is expecting its first-quarter streaming hours to jump by a staggering 49%, totaling 13.2 billion. While the surge in hours is reflective of existing viewer’s increasing consumption, ROKU is also experiencing an unprecedented rise in newcomers. The global trend of people flocking towards streaming services as a means of drowning out the virus will likely continue. Thus, triggering a titanic surge in ROKU’s users.

Furthermore, management released some more updates on its upcoming Q1 results (May 7th release date).

  • Total ROKU users reaches 39.8 million = Amazon has 40 million
  • ROKU forecasts revenue to be between $307 – $317 million = Above analysts expectations of $300 million
  • Gross profit is expected to fall from 48.8% (Q1 2019) to 45.4%

However, ROKU is not immune to COVID-19. The tech giant is likely to suffer short term losses in the ad revenue department. Ultimately, impacting ROKU’s growth for Q2 of 2020. However, ad spending, like most aspects of life, should return to its normal level in the long-term.

Is ROKU worth the investment?

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

ROKU is a recession-proof stock. Because when we enter a recession (opinion) unemployed people, while at home, and the employed will crave a distraction from the doom and gloom. Causing streaming services companies like Netflix, Disney and ROKU to skyrocket.

It seems ROKU’s pre-COVID momentum is returning and showing no signs of stopping. While the bears still have their claws entrenched in the market, it appears the bulls have won the fight within ROKU. Because over the past few weeks, every daily low is creating an upwards staircase. Highlighting the underlying growth. The bulls should drive ROKU up to a full V-recovery and beyond (opinion, not advice).

However, I would not pounce on ROKU immediately. If I was investing in the tech giant, I would be waiting for the dip. Because the rally will inevitably cause a sell-off at some point in the imminent future. Alternatively, you could apply the progressive-positive strategy on ROKU.  In which you invest a small amount of capital upfront. Followed by topping up the investment at predetermined percentage increases.

To summarise, ROKU is a recession-proof stock that has strong bullish momentum and an optimistic COVID-19 outlook. Thus, it is a no-brainer to have ROKU at least on your watchlist.

 

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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Patrick McLoughlin and Tyger Fitzpatrick, Senior Manager, and Founder of YIG.

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