U.S. Markets closed

Will Roku Carry Momentum Over Into 2020?

Christopher Vargas

Roku ROKU was the best performing tech stock of 2019 as it soared over 355% during the year, but it was no easy road for the company. The company’s meteoric rise in 2019 sent its valuation soaring as well as it currently trades at 16X its projected sales, which dwarfs the industry average of about 1X. As more competition moves into the streaming player space, let’s take a look at how our estimates predict Roku will do in this new year. 


Growth Outlook

Roku has captivated Wall Street with its impressive growth as its audience and consumption continues to rise rapidly. Roku has seen its audience of active accounts soar 36% over the past year to 32.3 million. In addition to this already impressive figure, the average account is spending nearly 3.5 hours a day on the platform. 

10.3 billion hours were spent browsing Roku’s hub in its latest quarter, which was an increase of 68%. The engagement numbers bode well for the company moving forward especially as more streaming services enter the space and get users to spend even longer hours on average on an agnostic platform like Roku.  

The increased amount of time spent browsing the company’s hub also bodes well for the business as it sells advertising on the hub. As more media giants launch their respective streaming services they might advertise their new offerings on a platform like Roku. 

Roku would in turn cash in on referral fees when viewers sign up for new offerings through Roku. The company doesn’t make much off of the established streaming giants like Netflix NFLX, which is why the influx of new services could prove to be a lucrative opportunity for the firm. Disney+ DIS and Apple TV AAPL just launched their services late last year and AT&T T owned, HBO Max as well as Comcast’s CMCSA Peacock are both set to launch during 2020. 


Estimates & Bottom Line

Our consensus Q4 estimates project the firm’s earnings declines to continue with a 380% plunge to a loss of $0.14 per share and net sales to soar over 42% to $392.4 million. Platform revenue is anticipated to grow over 70% to $258.4 million in the fourth quarter. 

Active accounts are estimated to rise over 32% to roughly 36 million while average streaming hours jumps to 11.7 and average revenue per user climbs over 30% to $23.39. 

Our fiscal 2020 estimates call for a top-line gain of over 40% to $1.56 billion and for a slight 1% bottom-line drop to a loss of $0.54 per share. 

Roku is projected to continue its growth campaign through 2020 but its sales growth is expected to continue to weigh on the firm’s bottom line. Investors should note that it will be crucial for Roku to continue to grow its consumption numbers as they are what brings companies to pay Roku for advertising space.

In addition, Roku has been sensitive to bad news as the stock dropped over 10% in a single trading day six times in 2019. However, the estimates look like more of the same for Roku in 2020 as it stands to benefit from the streaming wars. 

Looking for Stocks with Skyrocketing Upside?


Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.


Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.


See the pot trades we're targeting>>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
The Walt Disney Company (DIS) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
AT&T Inc. (T) : Free Stock Analysis Report
 
Comcast Corporation (CMCSA) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
Roku, Inc. (ROKU) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research