Let's talk about ROKU, kids.

Introduction I have been pumping ROKU stock for some time. The last time I wrote up some bullish DD was August 2019. The most extensive DD I wrote was Aug 2018 when it was trading at $60/share (I'll link it below). The reasons I like the stock then (very fast growth in users + ARPU) as well as the long-term durability of a business that comes attached to a several hundred dollar device (heavy, not something you move in a whim) still apply. The recent drops make me more bullish on the company than I have ever been. The Company ROKU is a profitable, fast-growing advertising technology company (like Facebook, Twitter, or Google) that sells television devices as well as software that runs on those devices. Founded in 2002, it is even older than Facebook and Twitter, but didn't IPO until 2017. The profitability growth experienced by ROKU since its IPO has been phenomenal -- the vast majority of the stock's performance comes from the performance in its financials, rather than to multiple expansion. ROKU IPO-d at 10x gross profit and now trades at about 20x gross profit -- while gross profit increasing about 7x over the same timeframe. Last quarter, ROKU clocked a 70% YoY increase in gross profit -- the flywheel is still moving at an incalculable rate. Sales growth has been more modest, remaining in the 50%-60% range but gross profit growth is more reflective of the strength of the business, as ROKU's revenue lumps together one minimally unprofitable + moderate growth business (sales of players) with a highly profitable + fast growing one (sales of targeted ads + other platform fees). It's surprising to consider that ROKU is still growing its top line about as quickly as when it IPO-d, but mathematically, this is because small declines in platform growth rate have been offset by the business as a whole increasingly reflecting this faster growing segment. As the platform business is now around 75%-80% of the business, future revenue growth will increasingly reflect platform growth, not player growth. Hence, this shift in mix toward the faster-growing business should continue to act as a tailwind for the company's relative financial performance, even as the growth from this business itself slows over time. To make a long story short, ROKU's top-line growth is not likely to slow down in the coming years, as both this minor tailwind and minor headwind should be anticipated to roughly offset one another for years to come. Consistent growth at 50%+ for any non-negligible amount of time leads to big numbers, quick. Future Performance ROKU continues to grow extremely quickly, and the stock should continue to benefit from increased revenues & profits, as well as from multiple expansion. 10- Year Risk Warren Buffett likes to ask whether a company in 10 years might have revenues and profits that are not substantially increased from where they are today. In ROKU's case, the risk of this outcome is essentially zero -- even if users stopped growing tomorrow and never resumed, ARPU growth alone could carry the business. As a profitable company, there is no risk to ROKU the company should the capital markets dry up in a big way (though this would of course hurt the stock). Competitive Landscape ROKU reports having the #1 market share in the US & Canada, as well as growing market share in its new international markets -- Mexico, Brazil, United Kingdom & France Expansion to new geographies in Europe & Lat/Am is on the immediate horizon. ROKU describes its international strategy as "doing what worked in the US, but in other countries." Indeed, this does seem to be working. The Setup Back in 2020, ROKU came to be seen as a "pandemic stock" -- a company that benefited greatly from one-time factors experienced during the corona pandemic. So for 2021, the comps were tough, and the stock took a hit. The result is a severe market overreaction -- ROKU grew like a weed prior to the pandemic, it grew like a weed during the pandemic, and, it will grow like a weed after the pandemic. The coronavirus affected annual growth rates and profits in a big way, but it did not affect the intrinsic value in a similar way. The stock is more than 50% off from its highs, even lower than it traded pre-pandemic, while being the strongest company that it has ever been with no signs of stopping. PT: $4,200 Included for reference: https://www.reddit.com/r/wallstreetbets/comments/96blr6/roku_writeup/ https://www.reddit.com/r/wallstreetbets/comments/cnpbd3/why_roku_is_a_1000_stock/

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Let's talk about ROKU, kids.

bullish

Introduction

I have been pumping ROKU stock for some time. The last time I wrote up some bullish DD was August 2019. The most extensive DD I wrote was Aug 2018 when it was trading at $60/share (I'll link it below). The reasons I like the stock then (very fast growth in users + ARPU) as well as the long-term durability of a business that comes attached to a several hundred dollar device (heavy, not something you move in a whim) still apply. The recent drops make me more bullish on the company than I have ever been.

The Company

ROKU is a profitable, fast-growing advertising technology company (like Facebook, Twitter, or Google) that sells television devices as well as software that runs on those devices. Founded in 2002, it is even older than Facebook and Twitter, but didn't IPO until 2017.

The profitability growth experienced by ROKU since its IPO has been phenomenal -- the vast majority of the stock's performance comes from the performance in its financials, rather than to multiple expansion. ROKU IPO-d at 10x gross profit and now trades at about 20x gross profit -- while gross profit increasing about 7x over the same timeframe. Last quarter, ROKU clocked a 70% YoY increase in gross profit -- the flywheel is still moving at an incalculable rate.

Sales growth has been more modest, remaining in the 50%-60% range but gross profit growth is more reflective of the strength of the business, as ROKU's revenue lumps together one minimally unprofitable + moderate growth business (sales of players) with a highly profitable + fast growing one (sales of targeted ads + other platform fees).

It's surprising to consider that ROKU is still growing its top line about as quickly as when it IPO-d, but mathematically, this is because small declines in platform growth rate have been offset by the business as a whole increasingly reflecting this faster growing segment. As the platform business is now around 75%-80% of the business, future revenue growth will increasingly reflect platform growth, not player growth. Hence, this shift in mix toward the faster-growing business should continue to act as a tailwind for the company's relative financial performance, even as the growth from this business itself slows over time.

To make a long story short, ROKU's top-line growth is not likely to slow down in the coming years, as both this minor tailwind and minor headwind should be anticipated to roughly offset one another for years to come. Consistent growth at 50%+ for any non-negligible amount of time leads to big numbers, quick.

Future Performance

ROKU continues to grow extremely quickly, and the stock should continue to benefit from increased revenues & profits, as well as from multiple expansion.

10- Year Risk

Warren Buffett likes to ask whether a company in 10 years might have revenues and profits that are not substantially increased from where they are today. In ROKU's case, the risk of this outcome is essentially zero -- even if users stopped growing tomorrow and never resumed, ARPU growth alone could carry the business. As a profitable company, there is no risk to ROKU the company should the capital markets dry up in a big way (though this would of course hurt the stock).

Competitive Landscape

ROKU reports having the #1 market share in the US & Canada, as well as growing market share in its new international markets -- Mexico, Brazil, United Kingdom & France Expansion to new geographies in Europe & Lat/Am is on the immediate horizon.

ROKU describes its international strategy as "doing what worked in the US, but in other countries." Indeed, this does seem to be working.

The Setup

Back in 2020, ROKU came to be seen as a "pandemic stock" -- a company that benefited greatly from one-time factors experienced during the corona pandemic. So for 2021, the comps were tough, and the stock took a hit. The result is a severe market overreaction -- ROKU grew like a weed prior to the pandemic, it grew like a weed during the pandemic, and, it will grow like a weed after the pandemic. The coronavirus affected annual growth rates and profits in a big way, but it did not affect the intrinsic value in a similar way.

The stock is more than 50% off from its highs, even lower than it traded pre-pandemic, while being the strongest company that it has ever been with no signs of stopping.

PT: $4,200

Included for reference:

https://www.reddit.com/r/wallstreetbets/comments/96blr6/roku_writeup/

https://www.reddit.com/r/wallstreetbets/comments/cnpbd3/why_roku_is_a_1000_stock/

read-time
3 min
200.00
Target Price
8/ 10
Confidence
6-12 Months
Timeframe
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SEC
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