If you’re bullish on the digital future of entertainment, chances are Netflix (NASDAQ: NFLX) and Roku (NASDAQ: ROKU) have dominated your investment radar. These two companies, with an intertwined origin story, have become undeniable leaders in transforming the way we consume media.
Netflix, once a disruptor to the traditional movie rental business, spearheaded a revolution in digital streaming. Proving naysayers wrong, Netflix demonstrated the significant potential of online video and ignited the now-booming streaming industry. Today, it stands as one of the largest subscription-based streaming services globally.
On the other hand, Roku originated as Netflix’s own streaming hardware division, designed to bring online entertainment into living rooms. However, in 2009, Roku spun off as an independent company to separate the hardware from the streaming service. While rivals have emerged, Roku maintains a dominant position in the market.
This begs the question: As you look to invest in the future of streaming, which giant stands as the superior choice in 2024?
While both stocks merit consideration, one of our analysts reveals a strong preference towards Roku. Let’s dive into their unique strengths and what sets these streaming pioneers apart.
Interconnected Yet Divergent Paths
Netflix and Roku, while symbiotically tied to the same expansive growth story, operate in vastly distinct spaces. Netflix focuses on delivering compelling content directly to subscribers, while Roku provides the essential hardware and software that brings Netflix and its competitors to your television.
The competition in both these spaces is fierce yet healthy. Market diversity fuels innovation, ultimately benefiting the consumer with choices, lower costs, and better features. Despite rivals popping up, both Roku and Netflix have achieved a level of dominance in their respective domains.
For a time, Netflix enjoyed a near-monopoly, but as content creators launched their own services, its market share dwindled. However, one of our analysts reminds us that there is still immense growth potential. Traditional TV still accounts for a significant portion of viewing time, and Netflix is well-positioned to gain ground as viewers switch to streaming options.
Roku’s Growth: Paralleling or Surpassing Netflix?
While Netflix’s growth potential is undeniable, Roku appears to offer even greater upside. Roku’s dominance extends not just to sales figures; it strategically positions itself as the go-to platform in top streaming markets like the US and Mexico. The company is also expanding aggressively in regions like Latin America and the UK.
Our analysts note that Roku’s success isn’t limited to hardware sales. Their advertising arm, embedded within their user-friendly menus, has proven to be a cash cow. Privacy analytics reveal Roku’s remarkable share of programmatic advertising in North America, cementing its position as a formidable force in the industry. Even amidst economic headwinds, Roku generates impressive free cash flow, boasting substantial cash reserves and a debt-free balance sheet. In a robust economy, Roku’s potential could be explosive.
The Verdict: Pricing Matters
Considering pricing and valuations, both Netflix and Roku offer compelling propositions. One of our analysts points out that Netflix has experienced a resurgence, currently trading below its historical price-to-sales ratios. This presents a tempting entry point for those seeking a blue-chip streaming stock at a relatively modest price.
However, Roku’s current rock-bottom pricing makes it a standout. Trading far below its peak valuations, its price-to-sales ratio resembles more traditional stable stocks, not the high-growth juggernaut it is. This “fire sale” price, when combined with Roku’s stellar growth prospects, makes it an incredibly appealing investment.
While both companies offer unique value, our analysts believe Roku presents a compelling advantage in today’s market. Its dominance, innovative advertising platform, and attractive pricing make it a strong contender for your portfolio. Don’t miss out on this opportunity to invest in the future of streaming.
