Netflix

NFLX

has been the biggest disappointment of first quarter earnings season so far, especially considering that Microsoft

MSFT

, Apple

AAPL

, Google

GOOGL

, and Facebook

FB

posted blowout quarterly results. The streaming TV firm fell short of Q1 subscriber projections and offered disappointing guidance after a blockbuster, pandemic-driven year where it added a record 37 million users to blow away its average of about 23 million over the last five years.

Quick Streaming Overview

The recent showing hardly means streaming is in trouble and the economic reopening is certainly not stopping the cord cutting train. Netflix boasts nearly 210 million subscribers and Disney+

DIS

topped 100 million global subscribers in roughly 16 months to crush its guidance. The entertainment conglomerate initially put out a goal of 60 to 90 million by 2024 and it now expects to hit 230 to 260 million by then.

Alongside NFLX and DIS, AT&T

T

has pushed to boosts HBO Max’s reach, while Amazon

AMZN

and Apple are spending hundreds of millions of dollars to bring more original movies and shows to their streaming platforms. Clearly, some of the largest companies in the world are committed to the future of entertainment.

Yet, there is only one pure-play streaming TV stock that stands to benefit from the growth of the entire industry: Roku

ROKU

, which reports its Q1 results on Thursday, May 6.

Roku’s Pitch

Roku’s small devices plug into TVs and allow users to watch streaming TV content from various services. The company’s tech is also built into smart TVs from different companies. In fact, Roku was the No. 1 smart TV OS sold in the U.S. in 2020, with nearly 40% market share. The company also sells wireless sound systems that compete alongside Sonos

SONO

and others.

More importantly, Roku makes money from advertising by selling ad space across its marketplace, as well as taking a share of the streaming service’s subscription revenue and ad inventory. Roku allows marketers to buy targeted ads, promote their streaming movies or platforms, and more.

Roku’s ad business has soared as advertisers follow consumers on their journey away from legacy media. Digital ad spending in the U.S. surpassed traditional outlets in 2019. This growth has come fast, with digital making up one-third of spending a few years ago. And eMarketer has projected that digital will account for roughly 65% of the roughly $240 billion-a-year space by 2023.

The company also has its own Roku Channel that allows users to watch free, ad-supported streaming movies and TV shows. And it landed in early January the streaming rights to all the short-form shows that the now-defunct Quibi created.

Most recently, Roku completed its acquisition of Nielsen’s Advanced Video Advertising business and “entered into a long-term strategic partnership” with the historic marketing research firm and media data giant to further boost its advertising bona fides.

Other Fundamentals

Roku’s fiscal 2020 revenue climbed 58% from $1.13 billion to $1.78 billion, which came on top of FY19’s 52% sales expansion. More specifically, its ad-heavy platform revenue soared 71% to account for over 70% of total sales and it added 14.3 million active accounts to close at 51.2 million.

The company noted that its monetized video ad impressions more than doubled YoY, as “advertisers increasingly followed users from traditional pay TV to streaming.” Plus, Roku posted adjusted Q4 earnings of +$0.49 a share to crush our estimate that called for a loss of -$0.05 a share.

Zacks estimates call for Roku’s first quarter revenue to jump 54% and for it to cut its adjusted loss from -$0.45 a share to -$0.18 per share. Overall, Roku’s fiscal 2021 revenue is projected to jump by 43% to reach $2.5 billion and roughly match FY18’s growth rate. Then the streaming TV firm is expected to climb by another 40% and add $1 billion to end 2022 with $3.5 billion.

At the bottom end, the company’s adjusted loss is currently projected to expand in 2021 to -$0.36 a share. But let’s remember it posted back-to-back quarters of positive adjusted earnings and it’s projected to swing to +$0.33 a share in FY22.

With this backdrop, it’s no surprise that Roku stock has soared 190% in the past year to almost double Shopify

SHOP

and other high-flyers. This is part of a nearly 1,000% climb in the last 36 months for the company that went public in 2017.

Like many growth names, Roku got hammered during the Nasdaq’s correction and at $355 a share, it trades 25% below its mid-February records. And it is trying to break back above its 50-day moving average.

Roku is up around 15% in the past month, yet it still sits underneath neutral RSI levels of 50, at 47. This could give it plenty of runway if it impresses Wall Street with its Q1 results and or guidance. The stock also trades 35% below its year-long highs at 16.1X forward sales, which marks a solid discount to fellow digital ad player The Trade Desk’s

TTD

28X.

Bottom Line

Roku currently lands a Zacks Rank #3 (Hold) based on its earnings revisions activity, while grabbing an “A” grade for Growth in our Style Scores system. And it’s part of a space that sits in the top 30% of our over 250 Zacks industries.

Therefore, investors with long-term horizons might want to consider Roku as a long-term bet on streaming TV and the digital-heavy ad age. And the company is working on its international expansion.

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