Big, bad Amazon (NASDAQ:AMZN) is at it again. Striving to control everything in your home and life, in an effort to boost its results and ultimately Amazon stock, it’s reportedly looking to rival Roku’s (NASDAQ:ROKU) free ad-supported streaming services. Naturally, Roku stock took a small dive on the news, which was reported on Apr 3.
If you own Roku stock, don’t let Jeff Bezos scare you into selling your stock. Amazon has huge ambitions, I’ll grant you, but Roku has something Amazon doesn’t: authenticity.
ROKU is a pure-play streaming business that manufactures streaming players and has its own operating system that’s integrated into Roku TVs which are built by various TV manufacturers who license the technology. ROKU also offers ad-supported and ad-free content through the Roku Channel.
In a nutshell, it has three revenue streams: the sale of players, licensing fees, and advertising and subscription fees. It has two business segments: Player and Platform.
That’s it. That’s all.
It doesn’t sell video doorbells or personal assistants or books or anything else that’s unrelated to video streaming.
When investors buy Roku stock, they know what they’re getting. ROKU might not have the financial might of Amazon, but it isn’t straying too far from its stated business model.
There’s a lot to be said for businesses that stick to their knitting. They generally can do a better job of focusing on the task at hand.
Why Shouldn’t the Owners of Roku Stock Fear Amazon?
One only has to look at the retail industry to see that, despite Amazon’s best efforts, brick-and-mortar retailers are alive and well in an omnichannel world.
Consider this headline from February 2013: “Best Buy is the Newest Amazon Showroom — How can a Retailer Battle “Showrooming?”
“The top 2 stores that lost the most customers due to this trend in 2012 were Best Buy and Walmart reflecting 46% of showroomers,” stated the article. “Other stores impacted are Target, Home Depot, Lowes and Barnes and Noble.”
Well, since that article was written, Best Buy (NYSE:BBY) and Walmart (NYSE:WMT) have seen their stocks appreciate by 40% and 350% respectively. The other stocks on the list, besides Barnes & Noble (NYSE:BKS), have also done well.
Each of these companies adapted to the competitive threats faced by Amazon and managed to thrive in a business environment that was seemingly stacked against them.
ROKU won’t be different.
It can’t worry about what Jeff Bezos is doing to disrupt its business. Although it doesn’t hurt to remain informed about what others in your industry are doing, ROKU has got to lead the streaming industry into the future proactively.
That is, it has to look ahead and not in the rearview mirror.
As Wayne Gretzky used to say, “You go where the puck is going to be, not where it is at that moment.”
It’s called vision, and I happen to think that Roku’s got plenty of it.
What I Think About Roku Stock
I’ve been a ROKU believer since late 2017, not too long after ROKU stock went public at $14 a share. Since then, Roku Inc stock has had its ups and downs, none bigger than its 63% decline in the final quarter of 2018.
In December, I reiterated my belief that ROKU would be a very profitable company someday, especially if it continues to grow its active accounts and viewing hours. It’s that simple.
“However, if Roku’s assertion that all TV will be streamed and so too will TV advertising, a prediction I tend to agree with (proves accurate). the future price of its stock will be much higher than $77.57,” I wrote in an article published on Dec. 3. “But first Roku has to make a fiscal profit. When it does that, the sky’s the limit,” I added.
I still believe that.
So, how did Roku stock do in 2018 in terms of active accounts and viewing hours?
Active accounts increased by 40% to 27.1 million, while the average active account viewed 885.61 hours in 2018, 15.5% higher than a year earlier. As a result, ROKU’s average revenue per user (ARPU) increased by 330.4% from $4.17 to $17.95.
That’s quite a boost.
On the bottom line, ROKU lost $8.9 million on $742.5 million in revenue. In 2019, it expects its sales to go over $1 billion. In 2018, it had adjusted EBITDA of $33 million, up significantly from the year before. In 2019, it expects to break even on EBITDA as it continues to add new employees to manage its growth in the U.S. and internationally.
The Bottom Line on Roku Stock
All I can say about Amazon is, “bring it on.” Roku’s more than ready to meet the challenge.
If the markets keep moving higher in 2019 (a big if), I could see Roku stock flirting with $80, or even $100, despite more than doubling in price year to date, as of midday on Apr. 5..
But it’s got to keep its eye on the ball and keep growing those two figures I mentioned. That’s the key to the success of Roku stock.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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