The COVID-19 pandemic accelerated several major trends already taking shape in the late 2010s. One of those was a shift to streaming video over linear TV, as nearly every major media company launched a new streaming service and had a captive audience to sell to. One of the biggest beneficiaries of the pandemic period was Roku (NASDAQ: ROKU), which operates the largest connected TV platform in the world.
Roku’s share price more than tripled in value in the six months from mid-August 2020 to mid-February 2021. Shares reached an all-time high in late July that year. But shares dropped precipitously through the end of the year and throughout 2022.
After a strong rebound in 2023, Roku shares looked poised to continue their momentum into 2024. But the market had different ideas. Shares are currently down about 25% year to date and more than 85% from their all-time high.
But right now could be a great opportunity for investors. Roku is posting strong operating results, and its potential is great, especially if you take the long-term view. The ailments of the last few years appear to be mostly behind it.
Image source: Getty Images.
The biggest drag on Roku’s results
Roku saw strong results in 2020 and 2021 as media companies launched their own streaming services. As the largest streaming platform in the United States (and many other countries), Roku had a lot of leverage over media companies looking to attract a large audience. As a result, it was able to extract favorable terms for revenue sharing, ad-inventory sharing, and ad purchases on its platform.
Moreover, growing competition among streaming services led to higher ad prices for some of its top ad inventory. Platform revenue, which includes its advertising business and revenue sharing, soared 80% in 2021.
Then the Federal Reserve started raising interest rates, investors put pressure on media companies to make streaming profitable, and the industry saw further consolidation.
The competition and ad sales that were driving Roku’s incredible success in 2020 and 2021 dried up and led to a massive hangover in 2022. On top of…
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