3. Roku, Inc. (NASDAQ: ROKU)
Number of Hedge Fund Holders: 61
Weight: 5.28%
Roku, Inc. (NASDAQ: ROKU) is a TV streaming platform based in California that ranks 3rd on the list of 12 best ARK stocks to invest in. Roku, Inc. (NASDAQ: ROKU) sells streaming players internationally.
According to the latest data from ARK Investment Management LLC, the hedge fund owned 3,292,627 shares of Roku, Inc. (NASDAQ: ROKU) worth $1.17 billion as of August 25, 2021, accounting for 5.28% of the Ark Innovation ETF (NYSEARCA: ARKK).
On August 19, Citi analyst Jason Bazinet maintained a Buy rating and a $410 price target on Roku, Inc. (NASDAQ: ROKU), highlighting the company’s strong growth in platform revenue per account, which increased 46% year over year to $36.46 per user. Shares of Roku, Inc. (NASDAQ: ROKU) jumped 7.5%, year to date.
The company has a market cap of $46.87 billion. In the second quarter of 2021, Roku, Inc. (NASDAQ: ROKU) reported an EPS of $0.52, beating estimates by $0.45. The company’s second-quarter revenue came in at $645.12 million, an increase of 81% year over year, and beat revenue estimates by $29.59 million. Roku, Inc.’s (NASDAQ: ROKU) active accounts increased by 1.5 million quarter over quarter to 55.1 million in Q2 2021. The stock has gained 141% in the past twelve months.
At the end of the second quarter of 2021, 61 hedge funds in the database of Insider Monkey held stakes worth $5.63 billion in Roku, Inc. (NASDAQ: ROKU), down from 63 in the preceding quarter worth $3.78 billion.
In its Q2 2021 investor letter, LRT Capital Management mentioned Roku, Inc. (NASDAQ: ROKU) and discussed its stance on the firm. Here is what the fund said:
“For a long time, we have had a small position in Roku, Inc. (ROKU), and we wanted to give you more information about why we like this company. The small size of the position (approximately 1.9% of our total equity exposure) reflects the stock’s volatility – we size positions inversely to their volatility. This section was written by our intern, Jimmy Qian, with light edits by me. Jimmy is a rising junior at the University of Texas at Austin interested in working in the asset management industry.
Executive Summary
Roku is the leading TV streaming platform in the U.S and globally. The company’s mission is to be the leading company that connects the entire TV ecosystem of viewers, content publishers, and advertisers. Roku’s business model has two parts: selling streaming devices (Player Segment), and selling streaming content such as subscriptions, ads, and video-on demand services (Platform Segment). The Player segment operates with low margins and acts as a gateway to get users hooked on streaming content. The content in turn generates very high margins for Roku, which makes the company’s business model analogous to the razor-razorblades models of success of companies in the past. The Roku platform allows users to personalize their content selection with cable television replacement offerings and other streaming services that suit their budget and needs. The company is focused on improving its scale, engagement, and monetization. First, scale is based upon the number of active accounts. Second, improving engagement grows the number of hours watched for the company. Lastly, monetizing user activity by content subscriptions or advertising drives revenue growth.
Historically, investors viewed Roku as a provider of commoditized hardware. However, we see the business as a provider of a platform for streaming services with ongoing recurring revenues as the company reduces its reliance on hardware sales for profits. In fact, over the past 5 years, the share of revenue coming from hardware sales has shrunk to just 45%, while its contribution to gross profit declined to 19%.1 We believe that the company’s strong competitive advantage is rooted in its high switching cost and scale-based cost advantages. In addition, we believe Roku is only in the beginning stages of its growth both domestically in the United States and internationally where the cord-cutting phenomenon is at least five years behind the U.S. Lastly, Roku’s capital allocation strategy has been exemplary and focused primarily on acquisitions that improve the customer experience and value of its platform. The moat, growth opportunities, and the company’s track record of capital allocation makes us believe that Roku can deliver strong investment returns to shareholders in the upcoming years…”
