Roku stock analysis.
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Roku reported earnings last week and the stock soared by over 30%. Shares are now up 124% year to date. At the latest share price, the company has a market cap of 12.9 billion dollars. It’s got 1.8 billion of cash and no debt, so the enterprise value is 11.1 billion.
The latest earnings report revealed a 16% increase in active accounts to 74 million and an 11% increase in total revenue. That takes revenue up to 3.2 billion over the last 12 months roughly 7% more than this time last year.
However, Roku’s bottom line is still in the red. Net income over the last 12 months is negative 661 million and free cash flow is negative 166 million. Stock based compensation at 389 million is roughly 12% of revenue.
Roku’s business model can be organized into two parts. The platform segment generates revenue from the sale of digital advertising and content distribution. This segment generated 87% of revenue with a gross margin of 54%.
The device segment includes the sale of streaming players and Roku-branded TVs as well as some other smart products. This segment contributes the remaining 13% of revenue with negative gross margins of -17%.
So this segment is what’s known as a loss leader. By selling its devices at a loss, Roku can grow its user base and then monetise those users with advertising.
#rokustock #investing #stocks #overlookedalpha
Join 9000+ investors: https://www.overlookedalpha.com
Roku reported earnings last week and the stock soared by over 30%. Shares are now up 124% year to date. At the latest share price, the company has a market cap of 12.9 billion dollars. It’s got 1.8 billion of cash and no debt, so the enterprise value is 11.1 billion.
The latest earnings report revealed a 16% increase in active accounts to 74 million and an 11% increase in total revenue. That takes revenue up to 3.2 billion over the last 12 months roughly 7% more than this time last year.
However, Roku’s bottom line is still in the red. Net income over the last 12 months is negative 661 million and free cash flow is negative 166 million. Stock based compensation at 389 million is roughly 12% of revenue.
Roku’s business model can be organized into two parts. The platform segment generates revenue from the sale of digital advertising and content distribution. This segment generated 87% of revenue with a gross margin of 54%.
The device segment includes the sale of streaming players and Roku-branded TVs as well as some other smart products. This segment contributes the remaining 13% of revenue with negative gross margins of -17%.
So this segment is what’s known as a loss leader. By selling its devices at a loss, Roku can grow its user base and then monetise those users with advertising.
#rokustock #investing #stocks #overlookedalpha
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NewsTranscript
00:00 Roku reported earnings last week and the stock soared by over 30%. Shares are now up 124%
00:06 year to date. At the latest share price, the company has a market cap of $12.9 billion,
00:11 it's got $1.8 billion of cash and no debt so the enterprise value is $11.1 billion.
00:17 The latest earnings report revealed a 16% increase in active accounts to $74 million
00:23 and an 11% increase in total revenue. That takes revenue up to $3.2 billion over the last 12 months,
00:29 roughly 7% more than this time last year. However Roku's bottom line is still in the red,
00:34 net income over the last 12 months is -$661 million and free cash flow is -$166 million.
00:42 Stock based compensation at $389 million is roughly 12% of revenue.
00:47 Roku's business model can be organised into two parts. The platform segment generates revenue from
00:52 the sale of digital advertising and content distribution. This segment generated 87% of
00:57 revenue with a gross margin of 54%. The device segment includes the sale of streaming players
01:03 and Roku branded TVs as well as some other smart products. This segment contributes the remaining
01:08 13% of revenue with negative gross margins of -17%. So this segment is what's known as a loss
01:14 leader. By selling its devices at a loss, Roku can grow its user base and then monetise those users
01:20 with advertising. A crucial component to all of this is the Roku operating system. Roku licenses
01:26 its operating system to the manufacturers of TVs. This saves manufacturers money and allows Roku to
01:32 be the go to platform for viewers. According to Roku, over 40% of smart TVs in America now use
01:38 its operating system. As advertising dollars continue to move to streaming away from traditional
01:42 TV, there's going to be a lot of money up for grabs. Roku has also forged partnerships with
01:47 retailers like Walmart thanks to its shoppable ads technology. There's a blue sky scenario where
01:52 Roku becomes the go to gateway for all streaming services. The one major problem with all of this
01:58 is that Roku operates in a hugely competitive market. You've heard of the streaming wars but
02:03 the OS wars are also heating up. Google, Amazon, Samsung, Comcast, Vizio, there are lots of big
02:09 companies trying to gain share in the OS market. Many of whom have much larger resources than Roku.
02:16 Even if Roku maintains market share, its profits could come under pressure. Meanwhile, streaming
02:21 companies like Netflix are going to do everything they can to get viewers to go direct to their apps,
02:26 not a third party like Roku. Revenue increased 11% this quarter but sales and marketing expense
02:32 increased more than that by 23% and that contributed to a gross margin under 45%,
02:38 its lowest since 2019. Roku will likely grow revenue by 5% this year which isn't enough to
02:45 justify the valuation. Let's assume Roku manages to get back to 15% revenue growth going forward,
02:51 that would put revenue at $13 billion in 10 years time. If the company can manage a 15% net margin,
02:57 that would put net income at $2 billion. A 20 times multiple would put the valuation
03:02 at $39 billion in 10 years time. That works out to an investment return of 11.7% a year.
03:08 That seems reasonable, the problem is Roku seems a long way from positive earnings and there's a lot
03:13 that could go wrong. It's hard to predict what the future of this media and the advertising
03:18 within it will be and it's hard to see how Roku can continue to outperform much larger rivals.
03:24 For those reasons I give the stock a neutral rating but these are my personal opinions not
03:29 financial advice and I hold no position in the stock. For more detailed investing ideas
03:34 make sure to visit our website overlookedalpha.com