Roku's Evolution from Hardware to AI-Driven Streaming Software
"The second one I like is really a household name. It's called Roku. Most all of us have a Roku in our house. They made a decision several years ago to deemphasize selling sticks and instead sell their software as an operating system for smart TVs, putting them in 90 million households around the world. They just signed a deal with Amazon that gives them access to, I believe, 80% of U.S. households to play advertising into, and their advertising business is growing like a weed. They turned profitable and are even buying back stock."
The insight outlines Roku's strategic shift from hardware to a software-centric model, driven by its expansive user base and new advertising partnerships. The commentary underscores Roku's potential growth in the highly fragmented streaming market enabled by AI.
Roku as a Top Pick Backed by Strong Earnings
"Roku? The tickers ro shares are up more than 15%. That's the highest since April 2022 if you go to since sO. And that comes after the company reported earnings that really beat expectations. It also marked the company's first quarter with positive operating income since 2021. And of course, Wall Street is positive across the board. Bloomberg Intelligence said that results are good, although not gang busters. Benchmark said that this is also a good earnings report. Their only concern is that they've consistently had and will have expectations that are a little too far ahead from reality, but for now it's good. So, I'll tell you what, shout out to Laura Martin at Needam and Company. She's been pounding the table on this name for a couple years. Um, this has been like our top pick and she's been so right on that name."
Roku is highlighted as a top pick following a strong earnings report that beat expectations, marking a turnaround with positive operating income and solid analyst sentiment despite minor concerns about over-optimism in future expectations.
Roku Shares Decline Despite Raised Full-Year Forecast
"Let's take a look at Roku shares coming through full year net revenue forecast meeting estimates here. They actually boost that full year net revenue forecast. They met their estimates on the look ahead but you can see that their shares are falling 10% postmarket right now. They see full year net revenue $4.69 billion. They had seen $4.65 billion. The estimate had been for $4.66 billion but still you can see the shares really taking a whack in the after hours, now down 14%."
The commentary details Roku's earnings update where, despite raising its full-year net revenue forecast slightly above estimates, shares are experiencing a sharp after-hours decline, reflecting investor caution.
Updated Buy Recommendation for Roku
"So, now let's look at the company's valuation. And according to my discounted cash flow model, Roku's business is worth $11 per share. The current market price is $95. So, applying a margin of safety, this stock looks fairly valued using my proprietary discounted cash flow model. And then going back to fiscal.ai, which is my preferred data source, I'm using the forward price to operating cash flow for Roku because the company's earnings per share is more volatile. So, I'm using the forward OCF price to OCF. And this number at 18 looks undervalued for Roku given its prospects and the longer-term tailwinds for the streaming industry. This stock looks overall comprehensively slightly undervalued based on current market prices. So, I still like the business and even at current market prices, I like the long-term opportunity for investors. So, I will update my buy recommendation for Roku stock today."
The speaker updates his buy recommendation for Roku citing a discounted cash flow model that values the stock at $11 per share compared to a market price of $95, and a forward operating cash flow multiple at 18. He considers Roku slightly undervalued due to its long-term growth prospects in the streaming industry, reinforcing a bullish stance on the company.
Roku Shines in Q1 2025: Programmatic Ads and The Roku Channel Drive 16% Revenue Surge
"ROKU (earnings update): Strong Q1 with $1,021M rev (+16% YoY), Platform $881M (+17%), Devices $140M (+11%). Platform GM stable at 52.7%, device margins negative. GAAP net loss $25M, Adj EBITDA $70M. Roku Channel now #2 US app, streaming +84% YoY. Programmatic ads growing. Frndly TV acquisition ($185M) to be EBITDA accretive. 40% US smart TV share. 2025 guidance: $4.55B rev, $350M EBITDA."