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RGA Investment: “ROKU has the Right to Win with their Installed Base”

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RGA Investment Advisors LLC, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. The fund encouraged existing and prospective clients alike that despite the pains of the past decade, investments in high-quality and reasonably priced equities were well-timed and would be rewarded in the years to come. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.

RGA Investment Advisors, in its Q4 2021 investor letter, mentioned Roku, Inc. (NASDAQ:ROKU) and discussed its stance on the firm. Founded in 2002, Roku, Inc. (NASDAQ:ROKU) is a Los Gatos, California-based publicly-traded company with a $16.8 billion market capitalization, and is currently spearheaded by its CEO, Anthony Wood. Roku, Inc. (NASDAQ:ROKU) delivered a -45.29% return since the beginning of the year, while its 12-month returns are down by -64.96%. The stock closed at $124.85 per share on March 18, 2022.

Here is what RGA Investment Advisors has to say about Roku, Inc. (NASDAQ:ROKU) in its Q4 2021 investor letter:

"Since we bought Roku, no stock has contributed more to our returns and no stock has been more volatile in our portfolio. This is now our third drawdown in the stock of over 30% and our second of over 60%. Fortunately (or tactically) before the two 60% drawdowns we had trimmed our positions by at least a third, though unfortunately that meant we still held large slices of the stock on the way down. Despite the stock having soared too far, too fast and thinking it was due for a period of digestion, we believe over our timeframe even the former highs will be rewarded with a good result. We have often pointed out that volatility in companies like Roku is the market’s way of grappling with a really wide range of potential outcomes and that remains as true today as ever, though the range of outcomes continues to narrow for the better for Roku.

Roku today is trading at lower multiples than at any point as a public company, meanwhile its revenue and margin composition has evolved from majority hardware to vast majority platform– in other words, each $1 of revenue is much more valuable today than ever before for Roku. Roku today is a profitable company for the first time in its history. Roku today has a multitude of investment opportunities within its own platform that can drive considerable value. Early in 2021 at higher prices, one had to believe the company would grow accounts internationally to justify valuations. This was so, because the company has so quickly achieved substantial penetration of the US market with 56.4m reported household customers of the ~130m total US households, that further growth in the US household count will be challenging and because prices were so high. Today, one merely needs to believe that with around 60 million households (the expectation for the yet reported year-end 2021 number), ARPU has a strong enough growth tailwind to reach $100 within a reasonable time, without relying on any incremental account growth. For context, as of Q3 this year, ARPU was $40, up 49% year-over-year and we know it will be higher in Q4. Growth in ARPU is underpinned by the continuing migration of viewer hours to CTV. The subforces behind this are increasing the penetration of Roku devices within households (go from one Roku to TV to 2-4), increasing the hours that each house watches (getting from shy of 4 hours to the nearly 8 hours an average American household watches TV) and broadening the content on the platform, increasing the share of inventory with content companies and more hours (like live sports viewing) shifting from linear to CTV. We further believe the opportunity to become the bundler and/or hub of household content subscriptions is growing, as evidenced by the rise in credit card pings per user from 1 to 1.3 per month and its continuing ascension. In this respect, Roku has the right to win with their installed base, because the experience is exponentially better than legacy and competing offerings..." (Click here to see the full text)

Roku, Movie
Roku, Movie

Photo by JESHOOTS.COM on Unsplash

Our calculations show that Roku, Inc. (NASDAQ:ROKU) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. Roku, Inc. (NASDAQ:ROKU) was in 43 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 57 funds in the previous quarter. Roku, Inc. (NASDAQ:ROKU) delivered a -45.26% return in the past 3 months.

In February 2022, we also shared another hedge fund’s views on Roku, Inc. (NASDAQ:ROKU) in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.

Disclosure: None. This article is originally published at Insider Monkey.