Some might say that the buying window for Roku (ROKU 1.16%) stock closes. Shares of the media streaming technology pioneer have gained about 70% in less than four months. By comparison, the S&P500 (^GSPC 0.57%) the index gained 20% over the same period. Wall Street analysts are not enthusiastic about this stock, and the average price target sits 7% below Roku's current price. And the company isn't even profitable, so how high can this stock chart go anyway?
Despite these entirely reasonable misgivings, I still see a neon sign in Roku's stock, displaying “buy me now” messages for the world to see. Let me explain why my view on Roku differs from the lukewarm mood in the market. Please take notes, as you may want to buy Roku stock at the end.
The changing fortunes of Roku
Roku's stock may have surged recently, but it's actually fallen 78% over the past three years. While the stock market as a whole struggled in 2022 and soared in 2023, the inflationary crisis has triggered a lingering slowdown in the digital advertising market. As a leading provider of digital advertising space, Roku has seen its inventory consolidated with digital marketers such as Magnite (MGNI 2.04%) And PubMatic (PUBM 2.13%). This group of next-generation advertising stocks couldn't participate in the S&P 500's 28% gain over the past three years:
That's fair enough, assuming that the advertising downturn has hit all the major players with devastating force. This is not the case.
Yes, Roku's revenue growth has slowed significantly during this period. Advertising buyers don't want to buy a lot of ad space when consumers' budgets are tight.
And Roku's flogging also included entirely voluntary pain. While its competitors in the advertising and consumer electronics markets raised their prices in order to negate the effects of inflation, Roku held its prices steady in a period of increased price sensitivity.
As a result, the company added millions of new users while its competitors barely retained their existing customer lists. Roku had 75.8 million active user accounts in the third quarter of 2023. This represents an increase of 34% in two years and 65% in three years – in the midst of a real industrial crisis and a weak economy.
The Roku Journey: Mastering the Digital Advertising Slowdown
Roku has not only survived these difficult times, but is thriving at the end of the tunnel.
It's almost as if management wants to make fun of Roku's bearish investors at this point. The company is ready to go as soon as ad buyers can manage healthy budgets again. I look forward to seeing stalled revenue growth come back to life, finally fueling healthy bottom lines.
Judging by early reports from other advertising experts, the rebound may have started in the fourth quarter. Parent Google AlphabetIt is (GOOG 2.04%) (GOOGL 2.12%) ad sales increased 11% year-over-year, following a 4% decline in last year's update. French advertising campaign optimizer Criteo (OTRO -0.71%) saw its revenue increase by 12% after deducting traffic acquisition expenses (ex-TAC), inspiring a 20% share price rise the following day.
Roku's holiday quarter report is scheduled for the evening of Thursday, February 15. I can't promise a blowout report, but many signs point in a bullish direction. You should consider grabbing a few Roku shares before this event. This little media technologist is going to move for the long haul, and you don't want to be left empty-handed as the growth story picks up steam.
Long story short: yes, Roku seems like a fantastic buy today.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anders Bylund holds positions at Alphabet, Criteo and Roku. The Motley Fool holds positions and recommends Alphabet, Magnite, PubMatic and Roku. The Motley Fool recommends Criteo. The Motley Fool has a disclosure policy.