No one would expect that 2020 will bring huge benefits to investors. Although the 14% increase in the S&P 500 index so far is not too bad in itself, it has been a particularly good year for technology investors. The high-tech Nasdaq Composite Index rose an incredible 45%.
With so many technology stocks rising rapidly this year, the current valuations of many of the best companies in the market are difficult to justify. Therefore, you may be surprised when you hear that my favorite stock is a technology stock that has soared by more than 160% in the past 12 months.
My highest stock in 2021 is year (NASDAQ: ROKU) -A streaming TV platform expert, at least from a consumer̵
On the surface, Roku might make you think that the stock price is too high. In fact, stocks are currently trading at a price close to 30 times sales.This is about three times FacebookThe selling price ratio. However, a deeper understanding of the company’s fundamental dynamics and huge market opportunities shows why this stock is worth paying for.
First, investors should realize that Roku’s revenue is soaring. Total revenue in the most recent quarter increased by 73% year-on-year. Platform revenue accounted for 70% of total revenue, a surge of 78% year-on-year. With such growth, Roku’s market-to-sales ratio may drop rapidly, considering that the stock’s trading price is 19 times next year’s sales.
Importantly, Roku’s incredible revenue growth is driven by some powerful catalysts. For example, the company’s active accounts, streaming time and average revenue per user increased 43%, 54%, and 20% year-on-year in the third quarter. Although some investors may think these numbers are much higher than pre-pandemic levels, this is not the case when people are not sheltering at home. Active accounts, streaming hours and average revenue per user in the fourth quarter of 2019 increased by 36%, 60%, and 29%, respectively. The point is that Roku has established its leading position in the fast-growing, resilient market tailwind. Therefore, the rapid growth of income may continue. Of course, as time goes by, certain decelerations will naturally gradually disappear. But any slowdown may happen gradually.
Huge market opportunity
However, Roku’s growth story becomes more compelling here. As the provider of the major connected TV (CTV) platform, the company will participate in all major CTV market tailwinds-regardless of the facts. The Roku platform has 46 million active accounts, which is essential for any publisher to reach a mass market audience. Whether it is through advertising-supported programs or subscription-based programs to attract viewers, Roku can benefit from it.
Especially in the TV advertising market, it seems like a huge opportunity for Roku. It is estimated that the total advertising expenditure based on CTV this year is about 8 billion US dollars, of which more than 50 billion US dollars still flow to traditional TV. With sports finally starting to shift the long-awaited way from traditional television to focusing on viewers’ attention, as well as focusing on streaming media, this expensive content still needs advertising funding. Without it, it would be too expensive. More importantly, the opportunities for sports advertising are too tempting for marketers to pursue-especially in a more targeted, data-driven environment.
Roku quietly established one of the most valuable advertising platforms in the next decade: OneView. TV-centric advertising platforms cover four-fifths of American households. As advertising costs continue to shift from traditional TV to streaming media, Roku is in a good position to capture a large portion of this expenditure.
However, some investors may hesitate about Roku’s valuation. Even the valuation of 19 times next year’s sales is quite high. In addition, Roku is still in investment mode. This means that meaningful profits may take years.
Nevertheless, I believe some simple predictions can help explain why Roku stock is worth its current valuation. Analysts have an average expected revenue of US$2.4 billion in 2021. If Roku manages to achieve an average annual growth rate of 30% after 2021, then by 2030, the annual revenue may reach US$25.5 billion. With sales (currently two-thirds of Facebook’s 30% net profit margin) and a P/E ratio of 30, Roku’s market value in 2030 may increase from today’s $46 billion to $153 billion.
There is no doubt that this prediction is too simple. It may prove to be too conservative or too radical. However, given that Roku only has a huge opportunity to gain share from traditional TV in the United States, and Roku has only just started internationally, this backward mathematical method is enough to make me bet on this fast-growing technology company-even today Calculation of the valuation.
What are the risks?
As with any single stock, there is no guarantee that an investment in Roku will work. Since this is a growth stock, investors should not only expect large volatility, but also unforeseen challenges or competition that proves to be more terrible than expected. Roku’s competitors are powerful technology giants, including letter, applewith Amazon -It means business.
But I believe that Roku’s positioning as an independent platform and its early market share leadership is enough to continue to win the favor of content publishers, marketers and TV viewers. Roku’s ability to negotiate with these major stakeholders is likely to continue to improve. Therefore, in the long run, I believe that investors in today’s Roku stock are likely to reap handsome returns.