Roku (ROKU) – A Beaten-Down Growth Stock With Big Upside
Roku has had a rough few years, with its stock down about 50% over the past three years. A slowdown in digital ad spending, weaker revenue growth, and a lack of profitability have kept many investors on the sidelines. But the story is starting to shift, and Roku’s upcoming fourth-quarter earnings report could be a turning point.
Despite the challenges, Roku continues to expand its platform, adding more users and increasing streaming hours. The company now serves 80 million active accounts, up 13% year over year, while total streaming hours have climbed 20%. Yet, average revenue per user (ARPU) has remained stagnant due to weakness in the digital advertising market and international expansion, which brings in lower per-user revenue than its U.S. business. However, there are signs that ad spending is improving, which could be a major tailwind for Roku moving forward.
Roku is also making smart financial moves. The company generated $149 million in free cash flow over the past year, showing it can operate profitably despite its net losses. It has aggressively cut costs, and analysts expect operating expenses to decline in 2024 while revenue continues to grow. With its partnership with The Trade Desk helping to drive ad revenue and the broader ad market showing signs of recovery, Roku could be on the verge of a major rebound.
Wall Street is starting to take notice. More analysts have upgraded Roku in recent months, and short interest has fallen, indicating that bearish sentiment is easing. Roku has beaten earnings estimates in each of its last four reports, and with its next earnings release on Feb. 13, this could be the moment when investors start to recognize the company’s long-term potential. For those looking to buy a high-growth stock before sentiment shifts, Roku is an attractive pick right now.
