It's been a tough year to be a Roku (NASDAQ: ROKU) shareholder. After growth accelerated during the early days of the pandemic, it has since slowed to a crawl, sending fair-weather investors running for the exits. As a result, the stock has fallen 81% over the past year, and 91% from its all-time high reached in mid-2021.
Yet there are glimmers of hope on the horizon. Roku announced some preliminary metrics for 2022 and the results suggest that the beaten-down stock may have finally turned the corner.
Account growth and strong engagement
Roku closed out 2022 on a high note, announcing its global active accounts had surpassed 70 million, up 16% year over year. While this is a far cry from the 40%-plus increases it generated during its lockdown-induced growth spurt, this marks the third consecutive quarter of accelerating growth, suggesting the worst may finally have passed.
Further supporting that conclusion is strong viewer engagement. In Q4, Roku's streaming hours grew 23% year over year to 23.9 billion, showing that audiences are spending more time watching programming on its platform.
Roku also said it maintained its industry leadership as the No. 1 streaming platform in the U.S., Canada, and Mexico in terms of hours streamed.
If you build it, they will come
This could mark the beginning of a broad-based recovery for the streaming pioneer. Naysayers point to high inflation, rising interest rates, and macroeconomic uncertainty as reasons to be wary, but those that take a broader view reach a very different conclusion.
Cord-cutting has reached epic proportions and this secular trend continues to gain steam. The major pay-TV services have already lost about 4.6 million subscribers through the first nine months of 2022, and are on track to surpass the record losses that occurred in 2020, according to data provided by Leichtman Research Group.
If consumers continue to feel the financial pinch, history shows that cable subscriptions will be on the chopping block. Logic dictates that viewers will no doubt turn to streaming video to supply their in-home entertainment fix. As the leading aggregator of streaming channels, Roku is well-positioned to fulfill that need.
What streaming fatigue?
Roku's numbers suggest that viewers had their fill of streaming video at the height of the pandemic and there's no going back, but that flies in the face of the available evidence.
In mid-2022, streaming video consumption surpassed cable for the first time and never looked back. Streaming accounted for more than 38% of all television viewing in November -- a new monthly record -- outpacing cable with 31.8% and traditional broadcast television sources with 25.7%, according to Nielsen's The Gauge report. In fact, streaming saw the largest increase in consumption, with a 10.2% surge during November.
This data suggests that not only are viewers flocking to streaming, but as the most-used gateway to both paid and ad-supported streaming, Roku stands at the epicenter of this changing paradigm.
Other growth drivers
One of the issues weighing on the company's growth in recent months was supply chain backlogs that had Roku-enabled TVs and streaming devices in short supply. Furthermore, management noted in its third-quarter shareholder letter that "supply chain costs remain elevated above pre-COVID levels," temporarily weighing on margins.
Roku has taken steps to bring these issues under control and expand its market opportunity. Just this week, the company announced the availability of a Roku-enabled OLED TV design, as well as the launch of Roku Select and Plus Series TVs, which feature the company's "award-winning operating system." According to the press release, "These Roku-branded HD and 4K TVs are the first ever to be both designed and made by Roku." By expanding into manufacturing, Roku has better control over the design, cost, and availability of these devices.
The company also continues to increase the relevance of The Roku Channel, its home-grown streaming offering, which is a "top 5 channel by both active account reach and streaming hour engagement," according to the company. Roku also keeps selectively adding original content, including its recent hit movie Weird: The Al Yankovic Story, which was lauded by viewers and critics alike. Its measured approach to expansion is paying dividends, as streaming hours for The Roku Channel grew by 90% year over year in the third quarter.
An unprecedented value
For all that potential, Roku stock is selling for a song. At roughly 1.8 times sales, Roku stock is selling for its cheapest valuation ever, making it a steal at its current price. For investors with the time and patience for the thesis to play out, Roku stock is a buy.
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