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While streaming services face a difficult post-pandemic environment, one in which gaining new subscribers has become more difficult, Roku‘s (ROKU -8.94%) competitive position in the industry is benefiting the company tremendously.  
Investors should look at some critical metrics that demonstrate Roku just keeps getting stronger with each passing quarter. And because of the stock’s 60% fall this year, the business looks like the best streaming investment right now. 
In the latest quarter, Roku increased its active accounts by 1.1 million to total 61.3 million. This was up 14% compared to the prior-year period. Inflationary issues and supply-chain bottlenecks have pushed management to sell the company’s hardware at a loss in recent quarters, but this is the right move to grow the user base. 
By providing consumers with a single and easy-to-use interface to view all of their favorite shows and movies from virtually any content provider, Roku’s value proposition speaks for itself. Big content producers like Netflix and Walt Disney can continue spending tens of billions of dollars each year. Roku essentially gets to grow on the back of these capital expenditures. 
The business currently has the leading market share in the U.S. for sales of smart TVs, supporting ongoing user growth. Furthermore, the shift away from traditional cable TV and toward streaming entertainment is a powerful tailwind that will propel Roku far into the future.  
Gaining active accounts is the first piece of the puzzle. Getting them to use the service more is the next important thing. In the first quarter of 2022, hours streamed on Roku’s platform totaled 20.9 billion, up 14% from the 2021 first quarter. Giving users the ability to view both streaming and linear TV makes it a no-brainer option in consumers’ living rooms. 
Finally agreeing to partnership renewal terms with Alphabet‘s YouTube and YouTube TV late last year was crucial for Roku to continue providing its accounts with the best content experience. Additionally, the success of The Roku Channel, which has thousands of free shows and movies, makes it easy to stay within the Roku ecosystem, thus increasing engagement. 
The average U.S. household watches eight hours of TV each day. Based on the 3.8 hours per day the average Roku active account streams on the platform, there is still a sizable opportunity to gain more viewing time.
Image source: Getty Images.
Users and engagement mean nothing if a company isn’t able to make revenue from its customers. Roku’s average revenue per user (ARPU) jumped 34% year over year in the first quarter to $42.91. This metric has consistently increased at a faster rate than active accounts and hours streamed in recent quarters, demonstrating how lucrative the business model is. 
The company primarily makes money from advertisements that someone sees while watching something on the Roku platform. The Roku Channel, which was a top-five channel on the platform in the U.S. in Q1, is a huge boon for the business because Roku gets to keep all of the ad revenue. And with a major content producer like Netflix exploring a cheaper, ad-based tier for its members, Roku’s monetization opportunity could potentially soar. 
Then there’s the underlying trend of advertising spending — from consumer-packaged goods companies, retailers, auto makers, and others — moving from traditional TV to reach the growing connected-TV audience. Because of its top position in the space, Roku will benefit from this shift.

If the previously discussed fundamentals aren’t compelling enough, look at Roku’s valuation right now. With shares down 73% over the past 12 months, the stock now trades at a price-to-sales multiple of just 4.4. Shares haven’t been this cheap in over three years, at a time when Roku was undeniably a worse business with a bigger dependency on low-margin hardware sales. The pessimism surrounding the stock today is unjustified. 
Investing behind certain secular trends is a potentially lucrative strategy. And one of the surest shifts out there is the continued growth of streaming entertainment. Roku’s adeptness at bringing on more users and finding ways to boost engagement and monetization, coupled with its incredibly attractive valuation, might mean that the stock could greatly reward shareholders in the years to come. 

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