We recently published a list of the 12 Best News and Digital Media Stocks To Buy. In this article, we are going to look at where Roku, Inc. (NASDAQ:ROKU) stands against other news and digital media stocks to buy now.
American Consumers and Digital Media
Digital experiences comprise a significant part of consumers’ lives in today’s digital age. According to Deloitte, consumers spend an average of eight hours engaging in online activities every day, which makes up about half of their waking hours. These trends are more prominent among Gen Z and millennials, who spend around nine hours on average on online activities every day. In contrast, Gen X and boomers spend around seven and six hours on average daily, respectively.
Around 7 in 10 respondents claim that they go online daily to use social media, carry out general web browsing, or communicate with their friends and family. 74% of Gen Z and millennials check their social media several times every day, with 20% of Gen Z checking their feeds at least every hour. In contrast, 57% of Gen X and 39% of boomers check their social media multiple times a day.
61% of consumers surveyed said that they interact with digital media daily by consuming entertainment (watching movies, sports, or television) on a streaming service. Similarly, around 48% said they listen to a podcast or music daily.
A study by Deloitte shows that US households spent around $760 on average on acquiring connected devices in 2024, down from $800 in 2023. Consumer technology spending fell between 2022 and 2023, primarily due to pandemic-driven supply chain disruptions, higher inflation, and slower economic growth.
However, estimates show that this spending is expected to bounce back, experiencing a 1% growth in revenue in 2024 and an extra 4.4% growth in 2025. Deloitte’s 2024 Connected Consumer Survey corroborates this claim, as it shows that 28% of respondents have plans to increase their device spending in 2025, up from 9% in 2023. In contrast, around 23% of people are planning to reduce their device purchase spending, up from 7% in 2023. This trend is attributed to the ongoing financial pressures on US consumers.
Are Americans Losing Interest in News?
Recent Pew Research Center surveys show a falling number of US adults who follow the news closely. Consumers for several older types of news media, such as local television stations, public radio, and newspapers, are dwindling as well. However, audiences for a few particular media brands are increasing, including newer digital platforms such as podcasts and social media.
According to a 2023 Pew Research Center survey, nearly 50% of all US adults claimed that they sometimes get news from social media. Although those who use social media to get news like various things about it, such as speed, convenience, and preciseness, some consumers express concerns about the practice. They claim news attained from social media isn’t always accurate, is seldom low in quality, and tends to be politically biased. Inaccuracy is increasingly becoming the most disliked aspect of social media news, going from 31% who said the same to 40% in the past five years.
Similarly, an Ernst & Young (EY) report on key entertainment and media trends for 2024 showed that consumer dissatisfaction with paying for unused television channels was leading to the rise of streaming services. Such services allowed households to personalize their content and reduce costs simultaneously.
Media companies are now facing the challenge of maintaining a profitable balance between traditional cable and linear broadcast networks and streaming platforms. Digital media companies are also employing artificial intelligence to regulate their operations, boosting incremental growth and productivity. However, risks regarding the implementation of GenAI persist. These include intellectual property protection, creative industries’ job security concerns, and privacy and accuracy challenges.
Our Methodology
To compile our list, we consulted online sources and ETFs to select 15 top news and digital media stocks. We then chose the top 12 stocks that were the most popular among hedge funds. We sourced the hedge fund data from Insider Monkey’s database. The stocks are arranged in ascending order of the number of hedge funds that hold stakes in them.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Roku, Inc. (NASDAQ:ROKU)
Number of Hedge Fund Holders: 40
Roku, Inc. (NASDAQ:ROKU) manages a television streaming platform and operates through Platform and Devices segments. It is also involved in streaming service distribution and digital advertising.
The company is rising in popularity. It delivered strong fiscal Q3 2024 results, which marked its first quarter of total net revenue exceeding $1 billion. Its total net revenue underwent a 16% year-over-year increase in fiscal Q3 2024, reaching $1.06 billion. This growth was attributed to streaming service distribution and advertising activities. The simplicity and value of the company’s platform are the primary reasons for its increasing popularity. Roku OS has taken the top spot as the best-selling TV OS in the US for more than five years.
The company’s Roku Channel app took third place on its platform in terms of both reach and engagement for the third consecutive quarter in fiscal Q3 2024. Its streaming hours increased by 80% year-over-year, attributed to the company’s position as the lead-in to television.
Roku, Inc. (NASDAQ:ROKU) is focused on strategic initiatives to grow its Platform revenue. These include Home Screen innovation, increasing Roku-billed subscriptions, and higher ad demand via deeper third-party platform integrations. The company continued to execute these initiatives in fiscal Q3 2024 and attained a 15% year-over-year Platform revenue growth.
The company is also driving growth in engagement, with its streaming hours growing by 20% year over year. Its streaming hours per streaming household grew as well, reaching 4.1 hours per streaming household per day in fiscal Q3 2024, up from 3.9 hours in the year-ago period.
O’keefe Stevens Advisory stated the following regarding Roku, Inc. (NASDAQ:ROKU) in its first quarter 2024 investor letter:
“Roku, Inc. (NASDAQ:ROKU) – An idea that would have seemed unthinkable just a few years back when low P/E or low multiple meant the stock was cheap. Roku is free-cash-flow positive, EBITDA breakeven, and GAAP Net Income unprofitable. Historically, investors tend to shy away from unprofitable businesses. Deeming them too risky. Roku has a $2B net cash position and is reinvesting in the business, grabbing Connected TV market share. Geographic expansion takes time and capital. They have a dominant share and have many tailwinds. Walmart’s acquisition of Vizio adds to the already heightened uncertainty. We can’t remember seeing a company with such “negative” sell-side coverage. 9 buys, 10 holds, and 4 sells. Nearly all reports discuss weighting for clarity, which is why the opportunity exists. Wells Fargo has the lowest price target at $45, or 26% downside. We see a reasonable case for a $100 stock in the near term and long term, owning a compounder with an attractive business model, secular tailwinds, and dominant market share that can translate into a desirable return over the next several years.”
Overall, ROKU ranks 6th on our list of the best news and digital media stocks. While we acknowledge the potential of ROKU to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ROKU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.