1. Roku Inc. (NASDAQ:ROKU)
Short Interest: 6.94%
Number of Hedge Fund Holders: 35
Roku (NASDAQ:ROKU) primarily operates a television streaming platform. Apart from connecting consumers to streamlining content of their choice, it also allows advertisers to engage customers and content publishers to build and monetize large audiences. The company’s segments are divided into devices and platforms. The devices segment covers licensing arrangements with TV brands and service operators in addition to the sales of audio products, smart home services and products, and streamlining players.
In contrast, the platform segment includes selling digital advertising and distributing streaming services. The company’s digital advertising sales include media and entertainment promotional spending, direct and programmatic video advertising, and similar services. The streaming services distribution, however, includes the sale of premium subscriptions, subscription and transaction revenue shares, and the sale of branded app buttons fixed on remote controls. Roku TV models are available in the United States and certain select countries through the licensing arrangements made with TV OEM brands.
More than 120 million people in the US use the Roku Home Screen, one of the company’s biggest assets that gives it a competitive market advantage. The company’s Q2 fiscal 2024 results recorded around 83.6 million streaming households, undergoing a 14% year over year growth with a sequential net addition of 2 million. This growth was driven by both streaming players and TV. Roku (NASDAQ:ROKU) is also experiencing a positive growth in consumer engagement, with streaming hours increasing by 20% year over year. Its engagement per account across the globe is increasing as well. Streaming hours per streaming household went from 3.8 hours in Q2 2023 to 4.0 hours in Q2 2024.
Apart from the increasing popularity of Roku Home Screen, the company’s investments in development and operations pipeline make it well poised for continued profitability. In fact, these positive factors allowed it to expect an acceleration in platform revenue in 2025. Total net revenue in Q2 fiscal 2024 grew by 14% year over year, touching $968 million. Platform revenue also increased to $824 million, with an 11% year-over-year growth.
These trends were driven by advertising activities and the distribution of streaming services. Streaming services distribution activities increased even faster than the overall platform revenue, primarily because of an increase in subscription prices. In addition, device revenue experienced a 39% year over year growth in Q2, primarily driven by the retail distribution expansion of Roku-branded TVs.
In the US, Roku (NASDAQ:ROKU) holds considerable market advantage and popularity. It stands as the top TV OS by streamed TV units and sales, with each share more than double the next largest operating system. These trends show that the company is on the path to building the lead-in to TV. Roku (NASDAQ:ROKU) is anticipating a strong net revenue of $1.01 billion in the third quarter, with an expected 11% year-over-year growth. It also expects platform revenue to grow by 9% year over year. The company is poised to maintain its strong execution record. It is focusing on its monetization initiatives, leveraging the Roku Home Screen as the TV lead-in, increasing Roku-billed subscriptions, and maximizing ad demand for the platform.
On September 12, Benchmark Co. gave Roku (NASDAQ:ROKU) a Buy rating. Wells Fargo also upgraded Roku (NASDAQ:ROKU) to Equal Weight from Under Weight due to Roku channel growth. As of Q2 2024, 35 hedge funds held the stock, with ARK Investment Management holding the highest stakes, worth $762.09 million.
Overall, ROKU ranks first among the 8 worst adtech stocks to buy now. While we acknowledge the potential of adtech companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ROKU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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