Roku (NASDAQ:ROKU) recently reported its financial results for the last three months of 2023. And based on the stock price movement, investors weren't happy with the numbers. Although sales exceeded expectations, management warned that industry headwinds continued this year.
The latest update once again proves that Roku is navigating an uncertain macroeconomic backdrop. And this will continue to impact the digital advertising market in the short term.
Nevertheless, the business is still well-positioned to benefit from the growing number of cord cutters.But is Roku the best? streaming stock Want to buy now? Let's take a closer look.
top streaming platforms
The best way to understand Roku's business model is to think of it as a three-pronged platform consisting of viewers, content providers, and advertisers. Viewers use the service as a way to enjoy all their favorite movies and TV shows in one elegant interface. And advertisers who want to target large, engaged streaming audiences can do so with Roku.
Although the company generates revenue from the sale of hardware devices such as smart TVs and media sticks, the majority of its revenue comes from its platform segment. This advertising and subscription revenue accounted for 86% of the total in 2023.
Roku, the leading smart TV operating system in the U.S., Canada and Mexico, has 80 million active accounts and streamed 29.1 billion hours of content in the last quarter.
Roku is in an advantageous position to ride the streaming entertainment wave while other companies spend tens of billions of dollars producing this content. Companies will also benefit from increased digital ad spending as marketing spend shifts from traditional cable TV to connected TV.
The stock has risen 77% since the beginning of 2023, but remains 85% below its all-time high. they again, Price relative to sales This is a multiple of 2.9 and only a fraction of the historical average of 10.1. This underwhelming rating helps support the argument that Roku may be the best way to play the streaming trend.
top streaming services
But investors can't ignore the industry's dominance. Netflix (NASDAQ:NFLX). The company now has more than 260 million paying customers after gaining a better-than-expected 13.1 million net new subscribers last quarter. This makes Netflix the largest streaming service on the planet, with total revenue of $33.7 billion in 2023.
Above, we mentioned how Roku avoids the huge expenses that other streaming companies have to deal with. It's true that he plans to spend a whopping $17 billion on content this year, after Netflix spent the same amount in 2023, but the company has an advantage thanks to its huge scale. . Netflix has such a large user base that it has no problem spending this much money every year.
Management expects Netflix to report Operating profit margin It is expected to reach 24% in 2024, with free cash flow totaling $6 billion. This puts this business in a league of its own in terms of financial strength. Successful paid sharing initiatives and new ad-based tiers are already supporting improved growth, which could lead to further profitability improvements over time.
This direct-to-consumer streaming service dominates the industry and ranks among the top streaming stocks. In other words, investors who want more exposure to this long-term trend could consider owning shares of both Netflix and Roku.
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Neil Patel and his clients have no positions in any stocks mentioned. The Motley Fool has positions in and recommends Netflix and Roku. The Motley Fool has a disclosure policy.
Is Roku the best streaming stock to buy right now? Originally published by The Motley Fool
