Companies part of the streaming segment remain solid bets for long-term investors. We have seen shares of Roku and Netflix crush the broader market in the last few years. While Roku (NASDAQ: ROKU) stock has gained over 1,400% since its IPO in 2017, Netflix (NASDAQ: NFLX) stock is up 1,640% in the last 10 years. The two stocks are part of a rapidly expanding addressable market and let’s analyze these companies to see why they are a solid bet right now.
Roku’s stellar Q2 results
Roku launched its first streaming device back in 2008 which was an operating system integrated with televisions. It is now the leading streaming platform in Canada and the U.S. and commands a market share of 31% and 38% respectively in these countries.
As Roku is the only purpose-built operating system for connected TV, it connects 55 million consumers with content publishers while monetizing this ecosystem via digital advertising. Last year, Roku launched the OneView ad tech platform that enables enterprises to display targeted ad campaigns on multiple devices. These campaigns can be optimized and measured which provides marketers a higher return on investment.
The company is also poised to benefit from the Roku channel which is its proprietary ad-supported streaming service. Roku is investing heavily to create its own content and released 23 original series this month. We can see how the billion-dollar giant is adding impetus to the flywheel that drives its business.
As Roku generates content, it will gain users that will widen the targeted base for advertisers. So, the company can increase ad sales by investing in content creation.
In the second quarter of 2020, Roku’s user engagement rose 19% despite a 2% decline in viewership across streaming platforms. The number of active accounts on Roku stood at 55.1 million, a 34% rise compared to 30.5 million accounts in the prior-year period. Its sales in the last 12-months also rose by 60% to $2.3 billion at the end of Q2.
Analysts now expect sales to touch $2.84 billion in 2021 and $3.9 billion in 2022, while Roku’s bottom-line is forecast to improve from a loss per share of $0.14 in 2020 to earnings of $1.64 per share in 2022.
Netflix stock has gained 3.4% year to date
After a record-breaking 2020, where the pandemic accelerated the shift towards online streaming, Netflix stock has taken a breather this year and is up 3.4% in 2021. Comparatively, the S&P 500 has soared over 20% in the first eight months of 2021.
Netflix began creating original content eight years back and has produced more than 2,300 titles to date. Its original content now accounts for 35% of all content on the Netflix platform. Netflix originals have also been nominated for several awards including the Oscars and Emmys.
The company has successfully leveraged data and artificial intelligence to create movies and TV series as well as providing personalized recommendations that are in line with the requirement of its user base. Netflix continues to benefit from a first-mover advantage allowing the company to enjoy a leadership position in a space that is attracting other tech giants.
Netflix’s subscriber base has increased from 130 million in the second quarter of 2018 to 209 million at the end of Q2 of 2021, indicating a compound annual growth rate of 17%. Its trailing 12-month revenue has increased from $13.9 billion to $27.6 billion in this period, which is an annual growth rate of 26%.
The streaming giant continues to gain subscribers despite increasing its subscription fees from $10.45/month in 2018 to $11.67/month in 2021, indicating its pricing power and a robust content strategy.
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