Everybody wants to own Roku
Jamie Louko (Roku): Out of all of ARK Invest’s ETFs, one of the largest holdings is Roku, signaling how optimistic the firm is about the company’s future. This is understandable considering Roku is the top streaming platform in the U.S., Canada, and Mexico in terms of hours streamed and had almost 21 billion hours streamed globally in Q1 2022.
The company is looking to leverage this leadership to capitalize on the growth in ad spending on streaming. In the U.S., audiences spend 46% of their TV time streaming according to Nielson, while eMarketer reports that advertisers put just 18% of their TV ad budgets towards streaming. This will likely change as it becomes clear that Americans are spending more time on streaming services, and Roku could be a major beneficiary.
The company has already benefited from the shift to streaming in the U.S. with almost $734 million of revenue in Q1 alone. Roku also generated $87 million in Q1 free cash flow, which could be invested to further its dominance.
Roku is not only attracting the eyes of Cathie Wood but also of Netflix (NFLX -0.48%). Rumors came out recently that Netflix was looking to buy Roku, and I can’t say I blame them. It wouldn't be bad to have a leading streaming platform with more than 61 million active accounts that could push consumers toward Netflix. While these are just rumors, it makes sense that Netflix would be open to buying Roku.
That said, Roku’s CEO and founder Anthony Wood would likely be against this. As of April 14, 2022, Wood owned over 17.7 million shares. Considering he believes Roku has a significant opportunity ahead, the chances are slim that he would be looking to cash out now.
At just 3.8 times sales, Roku looks like a bargain given the opportunity it has going forward. With its scale, advertisers could flock to Roku to spend their advertising budget as more ad budgets move to streaming, which would allow Roku to shoot higher from here. I would follow in Cathie Wood’s footsteps and pick up a few shares at these prices.
