Innovation, adaptability, and tech are just a few things that both Square and Roku have in common – but we ask, which is the better investment?
The ARK Innovation ETF is a fund that believes innovation is essential for future growth; in this line of thinking it created a fund for specific companies which it feels are pushing boundaries and have a good reward versus risk ratio.
In its top 10 holdings, many familiar faces jump out, including Tesla, Slack, Crispr Technologies, Roku (NASDAQ: ROKU), and Square (NYSE: SQ). Roku and Square along with several other Ark ETF stocks are perfectly positioned as high-growth stocks in the increasingly digitized world we find ourselves in. But, which one is a better buy?
Roku is a service which allows users to access and stream many channels from its easy to use platform. Just plug it in, connect to the internet, and start streaming. On a year-over-year (YoY) basis, Roku’s Q3 earnings have shown an increase in its active user accounts by 43% to 46 million, whilst the revenue generated from its platform increased by 73% to $319 million and its player revenue increased 62% to $132 million. It is fair to say that Roku is steadily gaining popularity and thus investors in this company will have been delighted with its results over the past year alone.
Roku earns a lot from advertisements, its ecosystem generates ads that are less intrusive and cleverly placed. With more users, more advertising revenue is generated and the more likely it becomes for Roku to sign deals with traditional TV channels. This is the crux of where Roku will have space to continue growing. In September this year, NBCUniversal’s streaming app ‘Peacock’ became the latest to join Roku’s streaming platform after reaching a deal which included advertising as a major factor, while rumors are circulating that HBO Max could be next.
Although everything seems to be going swimmingly for Roku, it faces extremely heightened competition from the likes of Google, Amazon, and Apple. Apple could be a worrying competitor as it has a similar-enough service with Apple TV+ where it provides a platform that apps for streaming services can be downloaded onto. As for Amazon, it has the Fire TV stick which is a direct competitor for its hardware market. Despite this, Roku has a completely different business model to these tech giants as it focuses on hardware sales and advertising instead of subscriptions.
Square is a digital payment platform that aims to provide both consumer and merchant-facing services. As part of its double-sided ecosystem, it provides credit-card readers, which are meant to be plugging into a mobile device as well as its Cash App, a peer-to-peer payment system. With well-renowned Twitter CEO, Jack Dorsey, also captaining Square, its growth has been impressive.
The pandemic turned rather positively for Square as many turned to its Cash App as a digital alternative to traditional banks. Many were even able to receive government stimulus cheques directly into their Cash App Accounts. The explosion in popularity is particularly evident in its 3rd quarter results, whilst Q2 saw total net income increase by 64% YoY to $1.92 billion; in Q3 it shot up to $3 billion with an increase of 140% YoY.
Square has several great features that allow it to appeal to a broad range of people, you can buy and sell bitcoin, use its trading feature, get a short-term loan, and also get a debit card through the deal it made with Marqueta. The company seems to be branching out, especially with this recent move into Bitcoin territory even the most bearish of investors in this stock are changing their tune now (cough cough Mark Palmer).
Much like Roku earlier, Square is playing in a market that is full of big-name competition. The likes of PayPal-owned Venmo, Stripe, and Alipay are all serious competitors to Square. But, as previously mentioned, this company is branching out and is attracting customers who don’t use traditional banking methods, as well as customers who want to be able to dabble in bitcoin, this gives it an edge over its other competitors and shows its innovative thinking in spades.
So which is a better investment?
Both of these companies rate equally well, investing in either one (or both) would be a good call as they are likely to continue on their growth trajectory and adapting to the world as they go. Roku is forming new deals and adapting its platform to make streaming more, well, streamlined. Square provides a myriad of financial services in one simple app which will continue to attract customers for a broad variety of reasons.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.