Netflix (NASDAQ: NFLX) and Roku (NASDAQ: ROKU) are two of the market’s leading streaming media titles. Netflix has the world’s best streaming video platform in terms of paid subscribers, while Roku is the market leader in streaming media devices in North America.
Netflix was actually an early investor in Roku. Roku founder Anthony Wood previously worked at Netflix, where he led the development of a set-top box for his streaming platform. But Wood then left Netflix and spearheaded Roku’s development of his own set-top box, and the rest is history.
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Both Netflix and Roku are benefiting from the slow death of “linear TV” services like cable and satellite TV and the rise of on-demand streaming services. Netflix launched its first video streaming platform in 2007, and its stock has skyrocketed 21,430% in the past 14 years. Roku went public in 2017, and its stock has already risen by about 2,290% from its IPO price of $ 14.
However, the two companies are also facing a growing number of competitors. Netflix must face Disney (NYSE: DIS) and other rapidly growing streaming platforms, while Roku faces intense competition from Amazon (NASDAQ: AMZN) and other tech giants in the crowded streaming device market.
Are either of these streaming stocks still worth buying today? Let’s compare their core businesses, growth rates and valuations to find out.
How fast is Netflix growing?
Netflix generates almost all of its revenue through paid subscriptions. Its total revenue grew 24% to $ 25 billion in 2020, and the number of paying subscribers increased 22% to 203.7 million. Its net profit rose 48% to $ 2.8 billion.
Netflix has generated robust growth throughout the pandemic, with people staying at home and streaming more content. Postponed projects and reduced marketing spending throughout the crisis also pushed Netflix’s operating margin from 12.9% in 2019 to 18.3% in 2020.
In the first half of 2021, Netflix revenue grew 22% year-over-year to $ 14.5 billion. Its paid subscriber count rose 8% to 209.2 million, exceeding its own forecast but raised concerns about a post-pandemic slowdown and competition from Disney – which ended its final quarter with nearly 174 million streaming subscribers on Disney +, ESPN + and Hulu.
On the bright side, Netflix’s operating margin still fell from 19.4% to 26.2% and its net profit jumped 114% to $ 3.1 billion. This expansion can in part be attributed to its tighter spending on new content.
Netflix aims to keep annual revenue growth at around 20%, but analysts expect revenue to grow only 19% this year and 15% next year. They expect its profits to jump 72% this year, but only improve 23% next year, likely as it ramps up spending on new shows and movies again.
How fast is Roku growing?
Roku generates most of its revenue and gross profit from its software platform – which hosts its embedded ads, content partnerships, and ad-supported Roku channel – while the rest comes from its proprietary hardware players. . By growing its higher margin platform business, Roku can sell its streaming devices at much lower prices.
Roku’s revenue grew 58% to $ 1.8 billion in 2020, and its active accounts grew 39% to $ 51.2 million. This growth can be attributed to the tendencies to stay at home during the pandemic, as well as the expansion of the Roku Channel – which now includes the old Quibi shows – as a free alternative to linear TV channels and paid streaming platforms like Netflix.
Roku ended the year with an operating loss, but its gross margin increased year over year from 43.9% to 45.4% as its business expanded. platform. Its Adjusted EBITDA more than quadrupled to $ 150 million.
In the first half of 2021, Roku’s revenue jumped 80% year-over-year to $ 1.2 billion. Its active accounts rose 28% to 55.1 million, but a sequential drop in its second-quarter streaming hours – which Roku attributed to reopening trends – scared investors.
But Roku’s gross margin still fell from 42.5% to 54.5%, even as its computer hardware business struggled with component shortages, and it generated Adjusted EBITDA of $ 248 million, against a loss of $ 20 million in the first half of 2020. Analysts expect Roku revenue to rise 60% this year and 37% next year. It is hoped that it will post its first adjusted profit this year and that its profits will increase by 32% next year.
The evaluations and the verdict
Netflix is trading at 46 times futures earnings and nine times this year’s sales. Roku has a forward P / E ratio of nearly 200 (assuming it generates adjusted profit this year) and is trading at 16 times this year’s sales.
Both companies face post-pandemic slowdowns, but Netflix is currently a more reasonable investment than Roku. Netflix’s valuation appears to be depressed by competitive threats, but the world’s leading paid streaming video platform is likely to maintain its lead after the pandemic ends.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Leo Sun owns shares of Amazon, Roku, and Walt Disney. The Motley Fool owns shares and recommends Amazon, Netflix, Roku, and Walt Disney. The Motley Fool recommends the following options: January 2022 long calls at $ 1,920 on Amazon and January 2022 short calls at $ 1,940 on Amazon. The Motley Fool has a disclosure policy.
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