Rocky Road for Roku?
Despite tremendous subscriber growth, there may not be enough leverage in the current business model.
Roku (ROKU) is the leading streaming platform in the United States by hours watched, with over 40 billion hours of content streamed in 2019. The Roku platform provides its users with access to streaming services such as Netflix, YouTube, and Disney+. The company also offers its own ad-supported content channels that feature licensed third-party content. Roku’s eponymous operating system is used not only in Roku-branded hardware but also in cobranded TVs and soundbars. Roku generates revenue from advertising, distribution fees, hardware sales, and subscription sales.
Despite operating in a highly competitive market, Roku has grown rapidly over the last five-plus years as it has benefited from the secular trend toward more over-the-top viewing as well as smart TV adoption. The company had 46 million monthly active users as of September 2020, up sharply from 6 million at the end of 2014. Streaming hours on the platform have similarly exploded from 2.5 billion in the first half of 2015 to 26.9 billion in the first half of 2020. Like the streaming services that it offers, Roku has benefited from the coronavirus-driven stay-home trend, but the secular shift toward streaming should provide a tailwind to both user growth and hour growth over the next few years.
Neil Macker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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