Roku (NASDAQ: ROKU ) not only delivered earnings that beat estimates last week but a story of long-term growth many analysts now believe in. This sent ROKU stock up 25% on Friday.
The company, whose streaming stick also supports an ad network, reported earnings of 5 cents per share fully diluted, on revenue of $276 million for the quarter ending in December.
The net income number was little changed from last year's $6.94 million, 6 cents per share fully diluted, but revenue was up from $188.2 million last year. More important was the mix of revenue, with more than half coming from its "platform" of existing users, and average revenue per user (ARPU) rising from $13.78 per subscriber last year to $17.95 this year.
ROKU Stock: It's All About Advertising
Roku has succeeded in raising ARPU, projecting revenue of over $1 billion for 2019, turning its Roku Channel into an advertising goldmine. It is now transitioning to mobile and taking its offer global. It finished the year with over 27 million active accounts.
Roku calls consumers' behavior "cord shaving," with those already buying premium services from cable now becoming streaming customers as well.
ROKU stock has been in vogue with investors before, since coming public late in 2017. ROKU shares traded at above $73 per share before the fall tech wreck, dropping to as low as $27 per share at Christmas.
The latest move up comes just as cable programmers and even cable owners shift to the streaming model. AT&T (NYSE: T ), Comcast (NASDAQ: CMCSA ), Disney (NYSE: DIS ) and Apple (NASDAQ: AAPL ) all expect to launch ad-supported or paid streaming services this year.
A few months ago these were seen as threats to Roku, but now analysts are swinging around to Roku's view that these are all opportunities . Roku calls itself a "TV operating system," its own offerings and software gaining the same advantages Microsoft (NASDAQ: MSFT ) Windows once got over its application developers.
The model is similar to what Amazon (NASDAQ: AMZN ) has done with its Fire stick, which re-sells both individual shows and services like Netflix (NASDAQ: NFLX ) and Disney's ESPN Plus. The price of the stick, and its software, is the razor. The programming subscriptions are the blades.
Roku's model doesn't depend on a cut of subscription sales so much as it does ad revenue . Roku says TV ads that are ported to Roku Channel , a free service that comes standard with the device, can increase their reach by 10%.
AT&T and Comcast are both launching ad-supported streams against start-ups like Tubi.TV and Amazon's IMDB Freedive , believing their control of the ISP account will guarantee them success. But the Roku device, which thanks to its ad revenue can now be sold at cost, can get between the ISP and the customer, giving it control of the account.
The Bottom Line on Roku Stock
Roku has done something that seemed impossible. It has found a way into a market dominated by giants, and guaranteed itself relevance in that market, as a re-seller and an ad competitor.
But its offering is easy to copy. Amazon has a streaming stick. Comcast and AT&T are bound to create their own, given free to subscribers just as they now give away routers. The end of net neutrality also lets them give away the bits their programs run on, and charge for those that run through Roku.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family , available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn . As of this writing he owned shares in AAPL, AMZN and MSFT.
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