Purchasing Roku Shares Right Now: Potential Lifelong Financial Benefits?
Roku's 2024 Success Story
In the recent financial roll call, Roku (ROKU -4.24%) disclosed its stellar performance for the final quarter of 2024. Boosting its revenue by a whopping 22% year-on-year to $1.2 billion, the streaming titan managed to turn a corner and post a net loss per share of $0.24 – a significant improvement compared to Q4 2023.
With its contemporary numbers surpassing Wall Street predictions, Roku shares initially soared, only to later settle down, trading 80% below their peak from July 2021. The company's quest to regain investor trust continues.
Streaming Achievements
Roku's triumphant earnings report revealed healthy gains in all key performance indicators. The company added an impressive 4.3 million net new accounts during Q4, totaling 89.8 million active households. This surge in viewers watched a staggering 34.1 billion hours of content across the platform, an 18% increase year-on-year.
The average Roku user keeps the platform humming for more than four hours daily (Q3 2024 data), contributing to the company's ability to monetize attention through its high average revenue per user. In fact, average revenue per user increased by a modest 4% year-on-year this quarter, as the company continues to strategize growth with its treasure trove of viewer data.
Streaming now accounts for 42.6% of total daily TV viewing time in the US (January 2025), a prominent share that continues to escalate due to the cord-cutting trend. Roku's highly-used operating system, which boasts a top North American market share, emerges as an attractive target for advertisers looking to engage large audiences, making Roku a top beneficiary.
Route to Profitability
Roku's history of aggressive growth has historically paved the way for hefty investments in sales, marketing, and research and development, but a recent shift in focus seems to prioritize profitability. In Q4 2024, the company reported an operating loss of $39.1 million – a significant improvement compared to Q4 2023.
Management aims for a full-year operating income positive in 2026, which wall street analysts predict will result in a substantial upsurge in the company's earnings per share from the $0.89 loss posted in 2023 to an impressive $1.71 in 2027.
Prospects and Valuation
Roku's strong streaming trends and digital advertising capabilities make for an appealing growth story. Currently trading at a P/S ratio of 3.4, Roku offers a 63% discount compared to its 9.1 historical average and an even more significant drop from the peak 33.5 multiple.
The primary concern investors may have is the formidable competition from tech titans like Apple, Amazon, and Alphabet, who also offer streaming services and boast superior digital ad capabilities.
If Roku successfully manages to navigate this challenge and consistently delivers impressive revenue and earnings growth, the opportunity to secure lifelong profits could be within reach – providing the right amount of initial investment and an extended time horizon.
In light of Roku's improved financial performance, some investors might see this as an opportunity for ridiculously high returns by investing in Roku shares. The company's shift towards profitability, as shown by the decrease in operating loss, could help in boosting its earnings per share by 2027. However, the valuation of Roku, currently at a P/S ratio of 3.4, is significantly lower than its historical average, offering a potential bargain for investors looking towards the long term. This strategy, when combined with a sizable initial investment, could potentially lead to lifelong profits for these investors in 2023 and beyond.
