Roku has faced a challenging year, with its stock falling by about 30% year-to-date. Despite posting better-than-expected Q1 2024 results, investors are concerned about increased competition and expectations of slowing platform sales. The company reported a 19% increase in revenue to $881 million and a gross profit increase of 18% year-over-year. This growth was driven in part by a higher number of active users on the platform, which reached 81.6 million. However, there are concerns about per-user revenue growth for the platform business and headwinds related to the streaming service distribution business.
Over a longer period, Roku stock has experienced significant fluctuations, declining by 80% from early 2021 levels to around $60 now. The stock underperformed the S&P 500 in 2021 and 2022 but saw significant gains in 2023. In comparison, the Trefis High Quality Portfolio has consistently outperformed the S&P 500 over the same period, providing better returns with less risk. The current uncertain macroeconomic environment, with high oil prices and elevated interest rates, raises questions about Roku’s performance in the next 12 months.
Despite the challenges, Roku is well-positioned to benefit from the secular trend of ad dollars shifting to digital video formats. The company has seen increased engagement on its platforms, with total streaming hours rising by 23% year-over-year. The Roku Channel saw a 66% increase in hours streamed. Roku has also made progress in managing costs, with operating expenses falling by 16% year-over-year in Q1. The company is generating more cash, with free cash flow reaching $426.7 million in the quarter.
Roku’s stock trades at about 2.2x forward revenue, significantly lower than its peak levels in 2021. Trefis values Roku stock at $70, 15% ahead of the current market price of $62. The company’s focus on driving higher-margin advertising revenue and cost management efforts could support future growth. Ultimately, the company’s ability to navigate competition and market dynamics will determine its performance in the coming months. Investors should consider the potential risks and opportunities associated with Roku stock before making investment decisions.
