Making money work in stocks that benefit from general and secular trends can be a lucrative strategy. Whether it’s digital payments, cloud computing, or e-commerce, when the entire industry is well supported, individual businesses in those industries do well.
Another area to invest in is streaming-entertainment industry. There are a number of stocks to consider, but I only have one eye on one right now as the New Year approaches.
here’s why Roku (NASDAQ: ROKU) is my favorite streaming stock for 2022.
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A rising tide lifts all the boats
Netflix (NASDAQ: NFLX) undoubtedly the pioneer of streaming entertainment, delivering premium quality content direct to internet viewers. With a current market capitalization approaching $ 270 billion and a membership count of 214 million, its monster success has led rival companies to introduce their own services in order to gain clients.
Roku has a particularly attractive business model because it pays off regardless of which specific streaming service ends up with the most subscribers – whether it’s Netflix, Walt disneyfrom Disney +, AT&Tfrom HBO Max, or Amazon First video. This is because they all use Roku as a gateway to reach viewers, helping Roku grow its user base as well as generate more ad revenue and various fees.
As more consumers switch from traditional cable TV to streaming, Roku will gain even more. It is estimated that 27% of US households will have abandoned their cable TV subscriptions by 2021, a trend that has been accelerated by the pandemic. Roku, with its leading US market share of 37% among streaming companies – including 56.4 million active accounts that watch an average of three and a half hours a day – is well positioned in the industry.
This growing and engaged user base makes Roku a very effective tool for connected TV advertising capabilities. Businesses of all sizes – from Walmart to small e-commerce businesses that reach directly to consumers – turn to OneView, Roku’s advertising platform, to execute their targeted marketing campaigns.
Add these favorable traits to a stock that has been in crater since July, and Roku is clearly a worthwhile investment in the streaming space.
The runaway success of The Roku Channel
There’s one thing in particular that makes Roku my favorite streaming stock for 2022, and that’s the dazzling success of The Roku Channel, which was among the top five streaming services on its platform in the third quarter.
Roku generated 86% of its revenue in the last quarter from its video streaming platform, a proportion that has grown over time compared to hardware sales. The platform business generates high margin subscription and advertising fees, which are the bread and butter of Roku’s operating model.
Usually, Roku takes 30% of the ad revenue on its platform, with the remaining 70% going to the ad-supported video-on-demand (or AVOD) service that has contracted with Roku. But since The Roku Channel is owned by the company, it retains 100% of advertising sales on this digital “real estate”.
During the third quarter, Roku added 23 new “Roku Original” titles to its own channel and plans to introduce 50 new shows over the next two years. Viewers can also watch over 200 traditional cable TV channels and licensed content from over 200 partners. It’s all free. As a result, The Roku Channel’s streaming hours have doubled over the past year, and its growing popularity is creating an unstoppable flywheel effect.
Why is this so important? Better content obviously brings more viewing to the Roku channel, which makes advertising on this channel much more appealing to marketers who want to reach a large audience. Since all of that ad revenue belongs to Roku, then the company has more money to reinvest in more content and get more viewers. And the cycle continues.
“The main focus is on the Roku platform, where The Roku Channel has become a very important asset to us. It is very successful and continues to perform well, ”commented Founder and CEO Anthony Wood. Call for Q3 results. It’s no surprise that the average revenue per user jumped 49% year over year to reach $ 40.10 in the third quarter.
The Roku Channel has taken a real boost this year and I think it’s a legitimate competitive advantage for the whole business. This is one of the main reasons I love the company as one of the top streaming titles by 2022.
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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. Neil Patel owns Netflix and Roku. The Motley Fool owns 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.