Roku Inc. (NASDAQ: ROKU) stock soared to a record high of $165.08 on Wednesday after expanding its premium audio products portfolio to include the new Roku Smart Soundbar and Roku Wireless Subwoofer. The company has priced both the products at $179.99 each with an expected shipment in October.
Market analysts believe the company is doing a lot in a heavily saturated space but growth opportunities and company valuations remained balanced. Despite growth opportunities, investors believed that the stock is now too expensive to be considered a good investment. Also, investors remained positive about the future of Roku following the robust performance in the second quarter.
Meanwhile, traders fear that competition could be taking a share out of Roku in the TV streaming space and this could hurt the company’s growth, which is likely to slow and limit future potential. The company’s business model is to grow gross profit by increasing the number of active accounts and related streaming hours and growing revenue through the monetization of its streaming platform.
TV streaming is increasingly competitive and global. The competition in TV streaming from the large technology companies as well as new and growing companies could increase in the future. This is likely to result in pricing pressure, lower revenue and gross profit or the failure of the company’s players, Roku TV and its platform to gain or maintain broad market acceptance.
Roku grows new accounts by selling streaming players, partnering with TV brands through its Roku TV licensing program, and licensing relationships with service operators. The company generates platform revenue primarily from advertising, content distribution and billing services on its platform and player revenue primarily from the sale of streaming players.
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The company’s future success depends on its ability to develop new and competitively priced streaming devices and add new desirable content and features to its platform. The development of new products is a highly complex process and the company’s research and development efforts are aimed at solving increasingly complex problems. This could increase the expenditures on research and development, promotion and sales channel development.
The company has experienced net losses and negative cash flows from operations in each year since inception. As of June 30, 2019, the company had an accumulated deficit of $273 million. The company is not expected to achieve profitability until its revenue and gross profit grow at a greater rate than operating expenses, which could increase in the future due to operations expansion.