Roku Stock Is Beaten Down Now, But It Could 10X

Few stocks fell as far in the 2022 tech stock crash as Roku (NASDAQ: ROKU).

From peak to trough, Roku stock fell more than 90% as stocks and industries that boomed during the pandemic crashed in the reopening. Streaming media was one of them. Streaming sign-ups at services such as Netflix (NASDAQ: NFLX) soared during the pandemic and then hit a wall in 2022, and Roku was a victim of that trend as well.

The company’s business is primarily driven by streaming growth and digital advertising, and both of those industries slowed sharply in 2022. At the same time, Roku had ramped up its spending, leading to wide losses. The following chart shows how the company’s revenue growth slumped and profits turned into losses during that period.

Revenue growth fell sharply in 2022 and essentially flatlined for two quarters in a row before a recent rebound. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) have followed a similar trajectory and were actually positive in the third quarter for the first time in several years, when costs related to layoffs are excluded.

The rebound is underway

Roku stock is still down roughly 80% from its pandemic-era peak, but the business is clearly moving in the right direction.

In its third quarter, the number of active accounts on the platform rose 16% to 75.8 million, and the number of streaming hours jumped 22% to 26.7 billion, showing that usage on the platform continues to grow steadily. Revenue growth also improved to 20%, its fastest pace in six quarters as advertising demand is recovering.

Roku has trimmed its cost structure after three rounds of layoffs, which has allowed it to return to positive adjusted EBITDA after several quarters of losses. in this metric. Roku reported adjusted EBITDA profit of $43 million in the third quarter on $912 million in revenue.

But there’s more than just the company’s own numbers and improving digital advertising…