We recently compiled a list of the 12 Best Streaming Service Stocks to Buy According to Analysts. In this article, we are going to take a look at where Roku, Inc. (NASDAQ:ROKU) stands against the other streaming service stocks.

The live streaming market size is expected to increase by US$20.64 billion, reflecting a CAGR of ~16.6% over 2024 and 2029, as per Technavio. The significant use of smartphones and constant internet connectivity allows users to easily stream content, resulting in market expansion. Furthermore, technological advancements such as AI and VR continue to enhance user experiences, further bolstering the market's momentum.

Pivoting to Next-generation Streaming 2.0

After 4 years of experimentation among the legacy global diversified media companies, S&P Global believes that 2025 can be an inflection point in the broader industry's multi-year transition to streaming from linear TV. The scaling of advertising on streaming is expected to be a critical component for growth in profitability. Most of the streaming services don't have enough subscribers on ad-tiers to attract advertising dollars, mainly those advertising budgets that are departing linear TV, says the firm.

Mainly for 2025, the firm expects companies to announce international JVs and domestic bundling arrangements. Why? These strategies can help the scaling up of streaming services, manage operating expenses through sharing infrastructure costs (mainly in second-tier international markets), and reduce churn.

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Focusing on Quality and Not Quantity

As per BDO, media companies and those organizations providing streaming services have increased their content libraries in a bid to attract new customers. Over the past few years, several media companies and streaming providers focused on customer attraction, targeting to get as many new subscribers as possible. The streaming platforms continued to churn out new material, resulting in a content boom. Now, the companies are focused on prioritizing customer retention as they reassess the quality of their content to ensure that it addresses demand.

BDO expects that most major streaming platforms are expected to increase their spending on content by less than 10% over the upcoming few years. The broader streaming industry continues to invest in podcasts. However, since the podcast space remains crowded, differentiating new products is expected to remain critical in 2025 to fuel demand.

As the broader sector evolves, media companies and streaming platforms need to revamp their strategies to reap the benefits of opportunities and address challenges, like subscribers sharing credentials and customer retention. BDO opines that these companies are required to look for ways to improve revenues, either by increasing the service fees or adding ad-free tiers.

Our Methodology

To list the 12 Best Streaming Service Stocks to Buy According to Analysts, we sifted through several online rankings and chose companies catering to the broader streaming services sector. Next, we chose the ones that analysts view as Strong Buy stocks and see upside to. Finally, the stocks were arranged in ascending order of their average upside potential, as of February 14. We also mentioned the hedge fund sentiment around each stock, as of Q3 2024.

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).

A large movie theatre filled with people enjoying a film streaming on a smart TV.

Roku, Inc. (NASDAQ:ROKU)

Average Upside Potential: 9.01%

Number of Hedge Fund Holders: 40

Roku, Inc. (NASDAQ:ROKU) operates a TV streaming platform in the US and internationally. BofA upped the company’s target price to $120 from $90, keeping a “Buy” rating. The firm’s revenue, EBITDA, and free cash flow estimates for FY 2025 moved higher after Roku, Inc. (NASDAQ:ROKU) announced Q4 2024 numbers. Furthermore, the analyst believes that the company’s scale remains a competitive advantage and is attractive to advertisers. The company delivered strong platform results in Q4 2024 which was the first quarter with over $1 billion in platform revenue, which increased 25% YoY.

Total net revenue came in at $4.1 billion, reflecting a rise of 18% YoY. Analyst Ruplu Bhattacharya from Bank of America Securities believes that Roku, Inc. (NASDAQ:ROKU)’s strategic initiatives, including the introduction of new advertising products such as Roku Ads Manager and Roku Data Cloud, can attract more advertisers and fuel platform revenues. Furthermore, Roku, Inc. (NASDAQ:ROKU)’s confidence in guiding FY 2025, a first since 2022, hints at an optimistic expectation of demand growth.

As per the analyst, the guidance is not dependent on the recovery of media and entertainment spending, demonstrating Roku, Inc. (NASDAQ:ROKU)’s broad-based growth strategy. For FY 2025, the company expects total net revenue of $4.610 billion, total gross profit of $2.005 billion, and adjusted EBITDA of $350 million.

Overall ROKU ranks 9th on our list of the best streaming service stocks to buy according to analysts. While we acknowledge the potential of ROKU as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued 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.