Roku Shares are on an absolute tear since it's IPO in late 2017. The stock is up 848% since then and more investors are wondering if Roku stock will continue to go up. One of the compelling reasons to own Roku stock is they are a pioneer in the video streaming industry and make video streaming content easily accessible for consumers.
In fact, Roku is growing faster than Netfix did at the same stage in its growth cycle. I'm always on the lookout for lifechanging companies that will brand household brands across the world. It looks like Roku ticks all those boxes.
But now let's go over 5 reasons why Roku stock is a long term buy and hold along with some potential takeaways to provide a balance analysis.
1. Roku Projected to Hit $4.5 Billion in Revenue by 2020
Roku is another hot growth stock with amazing growth prospects. However, due to recent performance many investors are worried about Roku stock being overvalued. In the short term, we may see a correction in share price but I like the long term valuation. Analysts predict Roku will hit 80 million subscribers and $4.5 billion in revenue by 2025.
Revenue was $746 million in 2018 and Roku predicts they will earn $1 billion in ad revenue alone in 2019. That means Roku could potentially 7x revenue within the next 5 years. We've seen the same story before with growth stocks like Facebook, Amazon and Netflix who weren't profitable at first but became iconic brands in every American household. Roku looks like it is next in line to fit this mod.
2. $17 billion Market Cap Signals Shares are Undervalued Over the Long Run
Roku is developing a massive trend of Roku fanatics who use the product everyday. Estimates show the average U.S. household streams 3 hours of content on Roku daily. Not only that, but ARPU (Average Revenue Per User) is over $20 and steadily increasing.
You get all the benefits of a fast growing company for a $17 billion market cap. Most iconic companies like I mention before trade well over $100 billion and I think Roku will one day be in a similar place. This means there is still lots of upside left in the shares over the long term.
3. Dominating Market Share of TV Streaming Market
While facing competition from the likes of Amazon, Google, and Apple, Roku has managed to dominate the competition in terms of market share. Over 15% of all streaming content was on a Roku device in Q1 2019 and the gap is widening.
4. Change in Consumer Behavior Puts Roku in the Driver's Seat
Cable TV was once the most sought after media around. If you are old enough, you probably remember the days when having Cable TV was a luxury. You did everything possible to persuade your family to upgrade their cable package so you could watch your favorite TV shows.
Well, the times have changed. Consumers are moving away from traditional cable TV and adopting the video streaming model. That's why companies like Disney and HBO are rushing to launch their own streaming networks.
Netflix pioneered video streaming but now everyone realizes the power of on-demand TV.
Roku is in a great spot because they allow households to connect their favorite video streaming platforms in one place. You can watch Netflix, ESPN or any other content from one dashboard.
This technology is fairly new and most new technology receives pushback just like when Steve Jobs launched the iPod and iPhone.
5. Roku Looks Like Another 30x Bagger in the Making.
If you purchased Roku during the IPO, you are up 847% or 9x your initial investment in just 2 years. Not bad at all.
The magic usually takes 10 or 20 years to earn a ridiculous ROI. While this is pure speculation, we may see a monster return over the long run with Roku.
Disclaimer: I am long Roku shares. I am not a certified financial advisor so please do your own research before buying any stocks. I was not compensated nor paid to publish this article.
Tarik Pierce is the founder of InvestorTrip.com and regularly contributes articles to this website.
While living overseas, he uses PureVPN for a low cost VPN service.
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While his background is mostly related to trading stocks, he recently gained interest in real estate crowdfunding with Fundrise.