Growth investors may have trouble finding good offers in this environment. The S&P 500 is up 10% in 2024 after soaring last year, and high-growth tech has seen an even bigger rally. Many stocks that performed poorly in 2022 are rising now that Wall Street is more optimistic about the economy and interest rates. The recovery has excluded Roku (NASDAQ: ROKU). The streaming stock is dropped 30% this year.
Don't let that dip deter you from this promising business. Roku isn't as big as Netflix (NASDAQ: NFLX), which is making good money. In 2023, Roku reported its second straight financial loss. Despite its recent drop, investors should investigate Roku stock. Here's why
Good engagement The Roku operating model is currently developing its monetization potential. The company's biggest issue is that it relies on advertising, while Netflix and Disney+ emphasize paid subscriptions.
Digital advertising rates dropped much of last year, making the former strategy unprofitable. Roku has no engagement issues. Streaming hours reached 100 billion in 2023, up 20%. The company added 10 million active users last year and has 80 million accounts (compared to Netflix's 260 million).
Last year was difficult to monetize that growing audience, but it's likely temporary. Zoom out and you'll notice tons more increase as TV viewing shifts from broadcasting to streaming. The average daily streaming time on Roku was 4.1 hours last year, up from 3.8 hours in 2022. The average daily TV time in traditional broadcasting is about 8 hours.
Growth over profits Roku prioritizes expansion over short-term earnings, which upset Wall Street. From $530 million in 2022, operating losses rose to $800 million last year. Many investors may avoid this growth stock due to that measure.
However, go beyond headline profit numbers to uncover hints of a profits comeback. As it strives for positive GAAP profitability, Roku returned to positive free cash flow last year and is anticipating positive adjusted earnings in 2024. "We plan to increase revenue and free cash flow and achieve profitability over time," executives wrote shareholders.
Looking ahead Cautious investors may wish to wait for profit growth before buying the stock. The next few quarters could be wild, with Wall Street pros predicting 12% sales growth. If you think Roku will monetize its rising user base, buying the company now when skepticism is high could yield great gains.
Shares are worth less than 3 times sales, compared to Netflix's 8 P/S. It may take years for Roku to close that valuation difference. If Roku can leverage on its rising audience, patient investors should be glad to see that tale unfold.
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