One BIG Reason to Buy ROKU Stock After Netflix’s Disastrous Earnings Report

Stocks to buy

What Happened to the Roku Stock Price Today?

A purple Roku (ROKU) sign is pictured on a wall in Los Gatos, California.

Source: JHVEPhoto / Shutterstock.com
  • Roku (NASDAQ:ROKU) stock saw wobbly trading Wednesday — at one point, dropping about a percent — on what was otherwise a very strong day for the stock market, and especially for tech stocks.
  • The lack of conviction among traders can be attributed to a bad earnings report from Netflix (NASDAQ:NFLX).
  • Roku’s stock ended the day higher by 50 basis points.

How Netflix Impacts Roku’s Stock

  • Netflix reported a sharp slowdown in subscriber growth in the first quarter of 2021, and called for that slowdown to get worse in the second quarter as the company faces headwinds from a “pull-forward” of demand into 2020 thanks to the pandemic.
  • Many fear these same “pull-forward” demand headwinds will show up in Roku’s first-quarter earnings report.
  • Indeed, Roku’s app download trends and web traffic followed a similar downward trend as Netflix’s in the first quarter of 2021, per data from Similar Web.
  • But Roku has one thing that Netflix doesn’t have: sports.
  • Sports could save ROKU stock this quarter.

Why Sports Matter to Roku Stock

  • Consumers may have watched less Netflix TV shows and movies during the first quarter of 2021. But they watched more sports.
  • In the first quarter of 2021, we had a Super Bowl and March Madness — two huge sporting events after a near 12-month lull in sports outside of the NBA playing in bubble in Florida.
  • Roku is a beneficiary of this, because you can stream sports through Roku’s platform. You cannot do that on Netflix.
  • Indeed, Roku said that viewership on its platform of the NCAA Men’s Basketball Tournament jumped 75% from the last tournament, which was held in 2019 (the NCAA called off the 2020 tournament due to Covid-19).
  • SimilarWeb data does show that Roku monthly active user base actually rose in the first quarter of 2021, whereas Netflix’s monthly active user base dropped.
  • This difference means Roku’s earnings could look a lot better than Netflix’s earnings.

ROKU Stock Price Forecast

  • We believe ROKU stock is fundamentally undervalued.
  • Long-term, this a company that is creating a software ecosystem which will one day turn into the digital “cable box” of the streaming TV world, serving as a central access point for consumers into all of their favorite streaming services.
  • The company will earn a lot of high-margin revenue from revenue-sharing agreements with streaming service providers, and ad sales through both its platform and ad-supported streaming channel.
  • Competition is muted by the fact that consumers like simplicity and consistency. Roku has designed the simplest, most intuitive interface in the streaming world, and owns most of the market, meaning consumers are used to the Roku UI and want to see it everywhere.
  • Given the company’s tremendous long-term growth potential, our modeling suggests ROKU stock is worth at least $450 today.

ROKU stock is a great play on the fact that the world is pivoting from linear TV to streaming TV. This pivot encompasses Netflix, Roku, Disney (NYSE:DIS), AT&T (NYSE:T), and so many more. By the end of the decade, everything we watch will be through the internet. Cable boxes will be as obsolete as CD players are today.

Netflix stock is the blue-chip stock to buy to play this streaming revolution. Roku stock is a higher-upside but still relatively safe bet. However, these stocks do not represent the highest upside picks in this space.

Instead, the highest upside picks in the streaming TV revolution — stocks that could soar 10X in value over the next decade — are lesser-known streaming companies that have an opportunity to turn into household ubiquities like Netflix one day.

Buying those stocks today, could be like buying Netflix stock a decade ago.

To get the names, ticker symbols, and key business details of those potential 10X stock picks, click here.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

By uncovering early investments in hypergrowth industries, Luke Lango puts you on the ground-floor of world-changing megatrends. It’s how his Daily 10X Report has averaged up to a ridiculous 100% return across all recommendations since launching last May. Click here to see how he does it.