Prediction: Roku Stock Will Double This Year

The S&P 500 just had another remarkable year, making it clear that it can be a wise choice for investors to consider placing some money into index-based exchange-traded funds (ETFs). The S&P 500 serves as a popular benchmark for the overall market, but it only covers 500 companies from a much larger pool of thousands. It's a market average, which means individual company performances can vary widely.

Roku (ROKU 3.88%) is a well-known stock and leader in its industry that is not part of the S&P 500. Unlike the strong upward trend seen in the market during 2024, Roku's stock fell by 19% throughout the year. There were some reasons behind the negative market perception of Roku, but these issues may only be temporary. In reality, there's a possibility that Roku stock could rebound and even double in value by 2025.

Reasons for the Market's Dislike of Roku

Roku has managed to grow its platform effectively in recent times. After experiencing fluctuations due to the pandemic's impact on its growth, both Roku's device sales and platform services are now expanding at double-digit rates. Although the company started the last year strong, it faced a downturn. Several factors contributed to the market's unfavorable view of Roku in 2024:

• Walmart announced its acquisition of Roku's competitor Vizio. Although this deal was revealed last February, it only finalized recently.
• Roku reported mixed performance for its fourth quarter of 2023.
• For the entire year, Roku’s average revenue per user has not changed.
• The company continues to report significant losses.
• Advertising sales have faced challenges due to inflationary pressures.

Potential for a Quick Reversal

With Walmart's acquisition of Vizio completed, there are no immediate threats to Roku's dominance in the streaming market. Roku remains the leading streaming platform in the U.S., Canada, and Mexico. In fact, it sold more devices during the third quarter than its two closest competitors combined. This solid lead allows Roku to secure its strong market position as it continues to innovate and form partnerships.

Furthermore, the company is making good progress towards becoming profitable, as shown by achieving positive free cash flow for five consecutive quarters along with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

Roku is in a robust cash position. Although most Wall Street analysts predict it won't be profitable in 2025, the company's management has hinted at reducing losses in the just-concluded fourth quarter. The increasing user base and revenue combined with improving profitability could eventually lead to economies of scale and profits.

Additionally, Roku has a significant opportunity to expand internationally. This growth focus is partly why its average revenue per user (ARPU) has stagnated; Roku is experiencing quicker member growth in foreign markets compared to the expansion of their advertising revenue.

How Roku Stock Might Double This Year

Several key factors could drive Roku stock higher in 2025. The advertising sector is recovering, and Roku, with its leading position, should benefit from increased advertising expenditures. The company recently partnered with The Trade Desk to streamline the advertising buying process, and it is actively pursuing international expansion.

Roku's management has anticipated a 16% year-over-year increase in sales for the fourth quarter. If they achieve a 16% growth rate in 2025, Roku's annual revenue could hit $4.5 billion by this time next year.

Should profitability continue to grow and investors gain confidence in Roku's future, the stock's price-to-sales ratio could rise. Currently, it sits at a low 2.7, but prior to last year's decline, this figure was over 4. With a projected annual sales figure of $4.5 billion and a return to a price-to-sales ratio of 4, Roku's market cap could reach $18 billion—a nearly 80% increase from its current valuation.

If the company accelerates its growth or if the market sentiment improves sufficiently to grant Roku a higher valuation, it's feasible for the stock to double within a year.

Though there are no guarantees, the lackluster stock performance of the past year was not rooted in enduring problems. As these issues fade, the market might finally be poised to support Roku's resurgence in 2025.

Note: This article reflects a prediction about Roku's potential financial future and does not serve as investment advice.

stock, Roku, S&P500