Here’s Why RGA Investment is Bullish Roku Inc. (ROKU)

RGA Investment Advisors, an investment management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. In the letter, the fund discussed the stocks they purchased and sold, the effect of the pandemic and the lessons they learned, as well as their positioning for 2021. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

In their Q4 2020 investor letter, RGA Investment Advisors mentioned Roku, Inc. (NASDAQ: ROKU) and shared their insights on the company. Roku, Inc. is an Los Gatos, California-based digital video streaming company that currently has a $42.6 billion market capitalization. Since the beginning of the year, ROKU delivered a -0.04% return, while its 12-month gains are impressively up by 302.16%. As of April 01, 2021, the stock closed at $331.90 per share.

Here is what RGA Investment Advisors has to say about Roku, Inc. in their Q4 2020 investor letter:

“For two years running, Roku has now been either the largest or second largest driver of performance in portfolios. When we purchased Roku, obviously we never expected such a phenomenal outcome, so quickly—these things can only be chalked up to luck. However, we do think luck is the residue of design and Roku had all the hallmarks ex ante as the kind of position that could do something wildly spectacular. One of the first signs in seeing Roku’s potential was the sharp contrast between our modeled expectations for the top line of the business and where the consensus expectations were. This was the Shopify setup all over again. By this time, we had added an additional tool to our analytical framework, and this helped further enforce our conviction that not only was it we who were right about where things should go, but also that the very existence of this gap could be a potent source of fuel behind the stock as the world came around to our expectation. Specifically, we had become increasingly comfortable building lifetime value analyses of companies, and notably, when we bought Roku, we were quite confident that with only modest annual increases in average revenue per user (ARPU), and a 5-year average customer lifespan, we were buying the company for its existing customer base and nothing more. In other words, the growth at Roku was entirely free at the prevailing prices we bought into.

Our calculations show that Roku, Inc. (NASDAQ: ROKU) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Roku, Inc. was in 60 hedge fund portfolios, compared to 59 funds in the third quarter. ROKU delivered a -0.04% return in the past 3 months.