Streaming video hardware and content provider Roku (ROKU) has been in decline for a while now. Faced with competition, Roku’s ability to keep up has been called into question for weeks now. Worse, the overall streaming video environment is taking a hit from a re-opening economy.
However, there’s some growing interest from institutional investors and a few changes brewing that could give Roku a whole new life. I’m bullish on Roku overall, if for no other reason than I love streaming video options. (See Analysts’ Top Stocks on TipRanks)
Roku has the potential to be a champ in this growing market, and getting behind it now could be a great plan.
Looking at Roku’s stock charts for the year so far shows a lot of peaks and valleys, though lately, it’s a lot more valley than peak.
In the early days of 2021, Roku was climbing, and frantically, making a serious push for $500 per share. Sadly, that didn’t last as the first suggestion of spring in late February saw the share price plunge.
A modest recovery kicked in in late March, but this was just the start of a second leg down. Early May brought another comeback, and ultimately, a push that made $500 a share look possible once more. This didn’t last either, and the company began a leg down that has continued to this very day. (See Roku stock charts on TipRanks)
ARK Invest Buys More Roku Stock
The plunge hasn’t been bad news for everyone, however. ARK Investment Management, managed by controversial investment professional Cathie Wood, has been buying Roku shares heavily since its decline began.
The ARK Innovation ETF (ARKK) bought over 158,000 shares on Monday alone. The ARK Next Generation Internet ETF (ARKW) bought over 44,000 shares. That’s in addition to 161,500 shares for the Innovation ETF on Friday and 43,500 shares for the Next Generation Internet ETF on Friday as well.
Analysts, meanwhile, are at odds with Roku’s potential. MoffettNathanson, for example, recently declared Roku a Sell and cut the price target from $330 per share to $220. The analyst pointed to issues of video advertising revenue for its motivation.
Guggenheim, meanwhile, notes that the “perfect storm of negativity” around the company makes for an excellent buying opportunity. ARK seems to agree on that front, as demonstrated by its recent frantic buying.
Don’t Count Roku out Just Yet
For those who think that competitors like Disney (DIS) might be a better play, there’s a point to consider that’s weighing heavily in Roku’s favor: original content.
For streaming services, original content is life. It’s what draws new customers and keeps the old ones shelling out their monthly subscription fees. Roku is planning to make a serious push into original content. It’s got plans to bring out better than 50 new shows over the course of the next two years.
Roku’s looking for a little of everything, reports note, in both scripted and unscripted content. It’s also got plans to pay solidly for these new shows, with budgets being described as “basic cable” tier. Roku may spend as much as $5 million per episode. That’s a bit behind some productions but well ahead of others.
By way of comparison, a typical episode of Netflix’s (NFLX) “Stranger Things” runs about $8 million. Netflix’s massive hit, “Squid Game,” posted a $21 million budget for the whole affair.
Meanwhile, there are signs that Disney won’t be having near the success it did previously, at least not without some profound changes. The company has been having trouble getting new content to the service in any substantial quantity.
While Disney+ has been pushing its low-hanging fruit, like Marvel-related content and Disney Vault releases, it’s struggled to push anything new to the service. It’s also been having this trouble in its linear cable and broadcast networks, reports note. This is a combination of COVID-19-related production issues and internal struggles over who approves what.
Wall Street’s Take
Turning to Wall Street, Roku has a Moderate Buy consensus rating, based on 18 Buys, two Holds, and two Sells assigned in the past three months. The average Roku price target of $408.24 implies 78.4% upside potential.
Analyst price targets range from a low of $220 per share to a high of $550.00 per share.
Concluding Views
Roku has a great potential to be a major force in streaming. It’s realized that one of its largest problems is an issue of content. It’s moving to seal that breach accordingly. Roku has also made this realization at a time when some of its biggest competitors are having trouble therein.
Granted, Roku’s hardware gains are likely to decline. You can only buy so many streaming boxes. With so many televisions, game consoles, and other devices doing that job, Roku’s hardware aspirations were always going to be second-fiddle.
However, Roku putting a serious investment in its own content is likely to be helpful going forward. Roku may be able to compete with some of the greats. That’s particularly true if it can keep the new content flowing, and at least some of it catches on. The company could be much bigger than it ever was. Accordingly, a recovery in its share price is easy to see coming.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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