Shares in Roku have been on an upward march, climbing nearly 90% in the last month, making the company — known for its smart TVs and streaming devices — the best-performing stock in the communication services industry… by some distance.
ROKU, R U OK?
In its earnings report a month ago, Roku told a compelling narrative to investors: sales were up 20%; video advertising was looking healthy; and cost-cutting measures, including laying off 300 employees in September, were lowering the company’s future expenses.
Since its founding in 2002, Roku’s main business for many years was in selling streaming boxes and physical hardware, which accounted for almost 85% of the company's revenue in 2015. But, over the best part of a decade, Roku has steadily built an enormous platform business, selling ads and services to its users. Although every shipment of a box or smart device may not make the company much money initially, distributing advertising and content to the 75 million active users on those devices is proving lucrative.
Of course, being in the ad business at that scale means competing with giants like Google and Meta, and dealing with the volatility that naturally follows. The company also remains in an awkward position when negotiating content deals with major players like Disney, YouTube, Netflix, and Amazon — all of which have the means to distribute their content through alternative routes. And, even with the surge last month, Roku stock is still down ~78% compared to its summer 2021 high.
