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Motley Fool: Starring Roku

Building its audience base is everything, and the pandemic has helped Roku's audience grow faster.   (Associated Press)
Building its audience base is everything, and the pandemic has helped Roku's audience grow faster.  (Associated Press)

Roku (Nasdaq: ROKU) is a premier streaming hub whose stock has surged in recent years. It doesn’t have a problem selling its dongles at a loss, as its deals with smart-TV makers make it the default operating system in 38% of smart TVs shipping in the U.S.

Building its audience base is everything, and the pandemic has helped Roku’s audience grow faster. The 56.4 million active accounts that it had by the end of September were a 23% increase over the previous year.

Folks turn to Roku as a free hub to launch thousands of available streaming services, while Roku generates money through ads it shows them. Average revenue per user is up 49% over the past year. The streaming hours served by Roku have surged 75% over the past two years.

Roku is just scratching the surface when it comes to monetization. It has started securing original content, rewarding its growing base with shows and films they can’t get anywhere else.

There are risks here – such as Roku’s stock price, which despite recently being down 52% from its 52-week high, still has a forward price-to-earnings (P/E) ratio in the triple digits. But as long as Roku continues to be a leader in streaming-service companies, its future looks bright – and long-term investors might consider it for their portfolios. (The Motley Fool owns shares of and has recommended Roku.)

Ask the Fool

Q. Can you explain what mortgage “points” are? – S.H., Mobile, Alabama

A. A point is 1% of a home loan. So if you’re borrowing, say, $300,000 to buy a home, one point would be $3,000. You’re most likely to run across “discount points,” which are points you may choose to pay in order to lower your loan’s interest rate. Doing so will shrink the total interest you’ll pay over the life of the loan and reduce your monthly mortgage payment.

It’s often not worth paying points if you’re not likely to stay in the home for many years, or if you have an adjustable-rate (not fixed-rate) mortgage. If you pay, say, $6,000 in points to lower your rate but then sell the home three years later, you likely won’t have saved enough to offset that $6,000 cost. And points paid on adjustable-rate loans usually affect only the initial rate, saving you less in the long run. Points paid to reduce your interest rate are generally tax-deductible, but you can only deduct them during each year in which you would have paid that interest.

You may also run across “origination” points, which are fees charged by some (though not all) lenders for work done on your mortgage. They’re not tax-deductible.

Online calculators such as those at Fool.com/calculators/ can help you determine whether paying points is a smart move for you.

Q. Where can I find out what percentage of a company’s stock is owned by insiders? – F.E., Grafton, Vermont

A. Try asking the company itself by contacting its investor relations department. Or consult a financial website such as Finance.Yahoo.com, where you can look up information on the company, including its major holders.

My dumbest investment

Many years ago, I was not an investor, other than trying to pay for a small farm I had bought. My son called from college and said, “Dad, you need to buy some Lucent stock. You will make enough money that you can buy diamonds as big as horse turds.” The imagery appealed to me, so I did some cursory research and bought $1,000 worth of Lucent stock. It began to go down, so I bought $500 more; further down, I bought another $500 worth. I could have made four farm payments with that money. The diamond vision faded. Ultimately, I sold the shares. I’m still not much of an investor, but have bought a few stocks, researching them in depth before clicking “buy.” I’m doing OK. And my farm is paid off. – R., online

The Fool responds: Lucent was spun off from AT&T in 1996, becoming a stand-alone communications equipment company. At one point, it was among America’s most widely held stocks, and its price soared along with other tech companies. Amid general investor euphoria over a surging stock market, many didn’t notice Lucent’s deteriorating balance sheet and didn’t question costly acquisitions. The more you dig into a company before buying, the better – and it’s important to keep up with the progress of your holdings. Also, think twice before doubling down on a falling stock, as often stock prices fall for good reasons.

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