The technology sector has undoubtedly been one of the hottest places to invest in for several years now. Even with valuations of some companies looking very rich, the NASDAQ and other indices dominated by tech stocks continue to push higher. If I had a portfolio of stocks worth five-figures and had a spare £1,500, here’s where I’d consider parking the money right now.
The backstory on Roku
The company I’m looking at is Roku (NASDAQ:ROKU). It’s a US-listed tech stock, but I can still buy it as a UK-based investor. Roku went public in 2017, and began life back in 2002. It manufactures digital media players and TVs on which to access streamed content. However, it has also branched into its own streaming channel. Recently, it bought the rights of streaming services from Quibi, another streaming platform, to add to its overall proposition.
It’s clearly a tech stock that’s appealing to customers. Although it might not seem a unique idea to us now, the ability to stream programmes to our TV is something that Roku brought to the mainstream. It benefits from gaining subscribers, selling advertising slots and licensing agreements with vendors.
The tech stock is also bringing people together in a profitable way. Subscribers had 18.3bn streaming hours during Q1, up 49% year-on-year. This growth was boosted as the number of active accounts continued to move higher. As of Q1, Roku had 53.6m active accounts that were streaming.
Reasons to consider buying
Usually, it’s the first mover in a particular industry that gains the competitive advantage in years to come. Roku is the first mover in the composite streaming space. Other platforms offer a streaming service, but few can bring together multiple content providers in one place quite like Roku. When you also add in the fact that the hardware being used is also from the firm, it has a powerful grip on the customer.
It actually reminds me of the situation Apple was in a few years ago when its Apple Watch came out. The fact that is could connect to your iPhone allowed Apple to grow its own ecosystem of products. The power of the connectedness of the brand made it logical for customers to stay with Apple. I see a similar strategy here. It paid off for Apple, so don’t see why it won’t for Roku.
In terms of it paying off, I like it as a tech stock as it isn’t burning through cash. Both platform and player revenue grew in double-digits in Q1 2021 when looking year-on-year. This allowed a gross profit for the quarter of $326.8m.
Risks with the tech stock
I think the key risk with buying Roku as a tech stock is the negative impact as we come out of the pandemic. Will streaming hours decrease as people get back outside and back to normal life? I do see this as an issue.
Another problem is the potential future pressure from a large tech brand that could eat into the market share of Roku. It has the first mover advantage, but market share could still be eaten away if another player enters the lucrative market.
Overall, I’m bullish on Roku and would look to invest.