Roku (ROKU): 2019 Top Picks' Mid-Year Update

07/18/2019 5:00 am EST

Focus: TECHNOLOGY

Todd Shaver

Founder and Editor-in-Chief, BullMarket.com

Todd Shaver, editor of BullMarket Report, selected Roku (ROKU) as his favorite speculation idea for the year. The stock has risen 220%, making it the #1 performer of the 110 stocks in our 2019 Top Picks through mid-year.

After Roku’s rough 4Q18, where the stock shed over 50% of its value, investors would be forgiven for bailing on the growing, mid-cap Tech stock. After all, if the broader economy did implode, a discretionary service provider like Roku would be among the first to feel the pain.

That said, the economy didn’t implode, the recession that doomsday prognosticators have been harping over for years now has yet to materialize, and Roku continues to grow its user base at a lightning-fast pace.

The stock is up over 180% YTD, and we’re expecting the company to maintain its pattern of breaking through all-time highs. But be careful, this stock is volatile and not for the faint of heart.

When we looked at the 2018 numbers at the start of the year, we were confident the fundamentals were rock solid. 2018 revenue grew 45% YoY to $740 million, and average revenue per user grew 40% to over $17.

With the user base continuing to expand – 1Q19 saw the company add an additional 3 million subscribers (now 27 million total), for a 13% increase over a single quarter -- Roku is growing on all fronts: user base, customer monetization, and top-line.

Even though the company forecasted decelerating revenue growth for 2019 (35%, to over $1 billion), that still represents astronomical growth. Plus, we believed management was being conservative, as has been their habit.

All of the macro-indicators are on Roku’s side as well. The company is the #1 licensed TV operating system in the United States, streaming 24 billion hours of content last year – a 60% YoY improvement. If Roku were a cable provider, it would be the third largest in the country behind Comcast and AT&T.

Part of the company’s value proposition is that its platform distributes multiple streaming services such as Netflix, Hulu, the Roku channel and others. That’s a powerful sales pitch to customers as the streaming industry grows ever-more diversified.

And with Millennials driving the cord-cutting revolution, 15% of all U.S. households are expected to be streaming-only by 2030. That’s a 50% increase from today’s numbers.

Roku is also well-positioned to capture increased market share as consumers shift to smart TVs with 4K displays at faster and faster rates. The company is riding some pretty powerful tailwinds.

That, plus the superb financials made going long on Roku a no-brainer. The stock keeps setting all-time highs, even though it’s often a bumpy ride. Given how nascent of an industry streaming is, we foresee more pitfalls ahead – but those will only be temporary. Consider any short-term blip a buying opportunity as Roku continues its market penetration and strong revenue growth rates. 

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