The smart-TV pioneer has been soaring since hitting an 18-month low last month.
One of this year’s biggest sinkers turned out to be a back-to-school sale. Shares of Roku (ROKU 5.67%) have rallied 53% since bottoming out last month, a spectacular late summer surge that even bulls probably didn’t see coming.
The catalyst isn’t easy to pinpoint. Roku kicked off last month with seemingly blowout results, but the market didn’t read it that way. At least four analysts would slash their price targets on the shares following the second-quarter report. The shares would go on to hit an 18-month low four days later.
There haven’t been any financial updates or investor conference presentations since the shares bottomed out. There were some fluff press releases put out by Roku, but nothing that would normally move the stock. However, in the quiet of the eye of the storm, three analysts have upgraded shares of the streaming-video-on-TV pioneer. Momentum is back. Roku will need to earn these upticks.
A change of heart
Roku was a rough investment through first seven months and change of the year. The stock is still trading 19% lower year to date, even with the 53% pop over the past five weeks. After more than doubling last year, 2024 has been a roller-coaster ride for the volatile streaming service stock.
A good place to start is the sentiment turn on Wall Street. The three upgrades since late August have similar themes. Roku’s monetization is improving. Growth is accelerating. It’s making strides on the road back to profitability.
Roku’s popularity has never been questioned. It had 83.6 million streaming households on its platform at the end of June, 14% more accounts than it was serving a year earlier. These aren’t passive viewers. The 30.1 billion streaming hours of content consumed through Roku is a 20% year-over-year increase. Homes are streaming more than four hours a day, a record that is fueling excitement about the future of its ad revenue. Its last shareholder letter leaned on a third-party industry report showing that Roku has a 47% share of the time spent on streaming by U.S. viewers, roughly 3 times its closest competitor.
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Roku has posted double-digit annual revenue growth every year as a public company, but for the first time since 2020 the top-line gains are accelerating in 2024. Investors didn’t think it would happen until Roku dramatically raised its full-year guidance in early August. Good things happen when your audience keeps growing and engagement intensifies.
There was a brief moment three years ago when Roku was profitable. It’s clawing its way to get back. Losses are narrowing. Analysts don’t see a return to reported profitability until 2027, but momentum suggests that it could happen earlier than that. Roku has posted much smaller deficits than Wall Street pros were targeting in back-to-back quarters.
Roku is starting to flex the power of its scalability. The Roku Channel — a free ad-supported channel available to Roku users — has seen its usage skyrocket 75% over the past year. It’s now one of the five most popular services on the platform, and that’s a dinner bell for advertisers trying to reach an audience that isn’t consuming linear television anymore. Last month it launched a sports-centered channel, giving folks another reason to stay close to the industry leader.
The stock isn’t cheap, but its business is a lot larger than it was three summers ago when the shares hit an all-time high. Investors have been burned buying into Roku rallies before, but the stock would have to appreciate sixfold from here to take out its summertime peak in 2021 when the shares approached $500. It’s OK to believe in Roku again.