Missed Roku’s 53% Rally? You may not be too late.

One of the biggest draws this year turned out to be a back-to-school sale. Actions of Roku (ROKU 5.67%) they’re up 53% since bottoming out last month, a spectacular late-summer rally that even the bulls probably didn’t see coming.

The catalyst is not easy to identify. Roku debuted last month with seemingly explosive results, but the market didn’t read it that way. At least four analysts reportedly cut their price targets on the stock following the second-quarter report. The stock would hit an 18-month low four days later.

There have been no financial updates or investor conference presentations since the stock bottomed. There were a few fluffy press releases put out by Roku, but nothing that would normally move the stock. However, in the calm in the eye of the storm, three analysts upgraded the streaming-video-on-TV pioneer’s stock. The moment has returned. Roku will have to earn these increases.

A change of heart

Roku was a tough investment for the first seven months and the turn of the year. Shares are still trading down 19% year-to-date, even with a 53% pop over the past five weeks. After more than doubling from last year, 2024 has been a roller coaster ride for the volatile streaming stock.

A good place to start is changing sentiment on Wall Street. The three upgrades at the end of August have similar themes. Roku’s monetization is getting better. Growth is accelerating. Take steps on the road back to profitability.

Roku’s popularity has never been in doubt. It had 83.6 million streaming households on its platform at the end of June, 14% more accounts than it served a year earlier. They are not passive spectators. The 30.1 billion hours of streaming content consumed via Roku represents a 20% year-over-year increase. Homes stream more than four hours a day, a record that fuels excitement about the future of ad revenue. The latest shareholder letter was based on a third-party industry report showing that Roku has a 47 percent share of time spent streaming by U.S. viewers, about three times its nearest competitor.

Image source: Getty Images.

Roku has seen double-digit annual revenue growth every year as a public company, but for the first time since 2020, top-line earnings are accelerating in 2024. Investors didn’t think it would happen until Roku dramatically raised its guidance for the whole year. at the beginning of August. Good things happen when your audience continues to grow and engagement intensifies.

There was a brief moment three years ago when Roku was profitable. He finds his way back. Losses are reduced. Analysts don’t see a return to reported profitability until 2027, but momentum suggests it could happen sooner. Roku has posted losses far smaller than Wall Street pros are targeting in consecutive quarters.

Roku is starting to flex the power of its scalability. The Roku Channel — a free, ad-supported channel available to Roku users — has seen usage explode by 75 percent over the past year. It’s now one of the five most popular services on the platform, and it’s a bellwether for advertisers trying to reach an audience that no longer consumes linear television. Last month it launched a sports-centric channel, giving people another reason to stay close to the industry leader.

The stock isn’t cheap, but his business is much bigger than it was three summers ago, when the stock hit an all-time high. Investors have been burned to buy in Roku rallies before, but the stock should appreciate sixfold from here to reach its summer peak in 2021, when shares approached $500. It’s okay to believe in Roku again.