Watch This Unloved Streaming Stock for Signs of a Turnaround

If the transition from traditional cable to streaming platforms wasn’t “official” already, it is now.

According to Nielsen’s “The Gauge,” which gives industry onlookers a clear snapshot of where – and how – consumers are watching TV, streaming’s share of total TV usage hit an all-time record high in June at 40.3%…

“The highest share of TV ever reported in The Gauge.”

As advertisers follow viewers to digital platforms, Roku’s (ROKU) role in connecting ad dollars with consumer screens could make it a compelling, albeit risky, investment.

Unlike many of its competitors, Roku goes beyond streaming subscriptions – offering the largest streaming operating system (OS) in the U.S. and a full suite of smart TVs, speakers, and home devices.

It also provides a unique global search feature that makes searching for content across different platforms seamless.

But the company – and its stock price – have had a tough go of it in 2024.

Rising competition from companies like Amazon.com (AMZN), Alphabet (GOOGL), and Apple (AAPL) are increasing pressure on Roku. These behemoths are expanding aggressively in the streaming space through their own Amazon Prime, YouTube, and Apple TV offerings.

Walmart’s (WMT) planned acquisition of Vizio (VZIO) presents another big competitive risk. If finalized, the $2.3 billion deal will hand Walmart one of the most popular smart TV brands in America, making it a direct threat to Roku’s otherwise unique value proposition.

And profitability concerns are front and center. In the first quarter, Roku reported a net loss of $50.85 million – a significant improvement from the $193.6 million lost in the same period last year. Gross profit increased by 15% year over year to $388.3 million, and total operating expenses fell by 16% to $460.3 million.

Roku is making strides but still has a long road. Analysts project continued losses through 2025.

Roku’s challenges are many, and they should not be taken lightly. But they also mean the bar is low… and investors will be tuned in for signs of a turnaround into earnings.

Here’s a look at the opportunities that could lift this down-and-out name…

AI, Live Sports Are Significant Opportunities

• Roku is honing its ad skills with AI and partnerships.

Roku Exchange, an AI-driven advertising technology platform, enhances Roku’s ad capabilities by connecting premium ad inventory with advertiser demand and optimizing campaigns using data and AI.

It integrates with demand-side platforms like The Trade Desk (TTD), Google Display & Video 360, and Yahoo DSP, providing tailored ad experiences and broader programmatic access, which strengthen Roku’s position in the advertising market.

Last week, you saw how ad spend is on track to surge in the back half of this year, propelled by events like the 2024 election and Summer Olympics. And Connected TV (CTV), Roku’s specialty, will be the fastest-growing medium of them all.

• Roku is also dipping its toe into live sports.

A Major League Baseball (MLB) deal allows Roku to broadcast 18 MLB games throughout the season for free on The Roku Channel, without blackout restrictions. This means that fans can watch these games from anywhere with an internet connection.

The increasing fragmentation of live sports could benefit Roku if it can effectively use its platform to make games easier for its users to find.

Take the National Football League (NFL), for instance. You’ll need access to nearly 10 channels/streaming services to watch the games. Roku is known for simplifying the consumer experience, so it could step in to ease a consumer pain point here.

Putting Things Into Perspective

Roku is a beast. The platform reached over 80 million active accounts worldwide by the end of 2023, with users streaming more than 100 billion hours of content, averaging 4.1 hours per day per account.

As the market sells the stock on fears of competition, an opportunity may be brewing for long-term investors. Shares are down 27% year to date (YTD).

We’ll be watching for signs of a turnaround when the company reports earnings next week.

LikeFolio data looks muted for Roku right now, with web visits down 4% year over year.

(Still, that’s an improvement from February.)

But many smart TV users may not even realize they are using a Roku device to stream their favorite shows… so no website to explore there. And the company certainly has streaming tailwinds going for it.

While competition grows and profitability remains a challenge, a small, risk-defined position in Roku MAY be warranted as the company seeks stability. Remember: The bar is low.

We’ve got a close eye on this company but aren’t ready to pull the trigger quite yet.

Until next time,

Andy Swan
Founder, LikeFolio

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