In its short tenure in the public spotlight, Roku (NASDAQ: ROKU) has risen at a blistering pace and is now valued at more than $10 billion. Stock for the streaming-devices pioneer has gained 300% in just 19 months, with no signs of slowing. That movement hasn't all been up and to the right, however, as the stock has also seen some precipitous plummets on the way to producing impressive gains.
This might lead investors to wonder if the best is yet to come for the streaming-technology company or if it will soon run out of gas. Fortunately, there are many indicators that suggest that Roku still has plenty of room to run. Here are five of the most compelling reasons.
1. The streaming tide is turning
Recent studies show that the average viewer now subscribes to three streaming services, and the three largest providers -- Netflix, Amazon.com's Prime Video, and Hulu -- are taking the top spots. But the tide toward paid services is beginning to turn, allowing advertising-supported platforms to gain market share.
In 2018, Roku grew its U.S. active account base to 27.1 million, up 40% year over year, and added nearly 8 million new subscribers. That easily outpaced the 5.68 million and 11% growth generated by Netflix.
The first quarter of 2019 marked the seventh-consecutive quarter -- every quarter since the company went public -- where active account growth exceeded 40% year over year. This illustrates that there's still significant untapped growth in the streaming market, especially for ad-supported options like Roku.
2. Growth is soaring
It wasn't just the company's subscriber growth that was impressive last year. The platform business, which is primarily advertising and makes up the majority of Roku's revenue, grew 88% year over year. Roku foregoes profitability on its players in order to grow its subscriber base. Those stunning results continue into 2019. Revenue grew by 51% in Roku's first quarter, while platform soared 79% year over year.
The average revenue per user, a measure of efficiency, grew to $19.06, up 27% year over year. Video ad impressions more than doubled last year, and Roku believes they'll double again this year. Engagement also grew, as existing customers are spending more time on Roku's platform, pushing streaming hours to 8.9 billion, up 74% compared to the prior-year quarter. In fact, Roku said in the fourth quarter that customers streamed more hours of content in the preceding 18 months than in the prior nine years combined.
3. A purpose-built operating system
While most streaming providers have become obsessed with content, Roku took a different approach to the market. The company designed an operating system (OS) specifically built for televisions, relying on the years of experience it accumulated developing its namesake streaming devices. By comparison, many other operators merely adapted an existing smartphone OS for the task.
Roku began licensing its OS to smart-TV manufacturers in 2014, and its strategy is paying off in spades. A host of well-known brands including TCL, Insignia, Sharp, JVC, Hitachi, and Philips use Roku's system in their products. The company revealed in the first quarter that more than 1 in 3 smart TVs sold in the U.S. incorporate a Roku OS.
4. A global opportunity
While Roku is the dominant provider of smart TVs in the U.S., it's just getting started on the worldwide stage. Earlier this year, the company announced that the international marketplace was one of four key areas where it would invest to drive future growth.
Having cracked the code for subscriber growth in the U.S., Roku can employ a similar strategy to "be successful on a global scale over the long-term," according to the company. One need only look to Netflix to see what Roku can hope to achieve. Netflix boasts 149 million subscribers and more than 88 million, or about 60%, are from international markets.
5. A secular shift
The television landscape is changing. Viewing habits are in the midst of a "secular shift," according to Roku CEO Anthony Wood, and consumers are increasingly ditching traditional broadcast television and cable options and adopting streaming video services. The first wave of paid streaming services is underway, but there remains another wave of ad-supported services -- and Roku caters to them all.
This once-in-a-lifetime shift will benefit those prepared to capitalize on the changes, and Roku is positioned at the crossroads.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon, Netflix, and Roku. The Motley Fool owns shares of and recommends Amazon and Netflix. The Motley Fool recommends Roku. The Motley Fool has a disclosure policy.