Innovation, adaptability, and tech are just a few things that both Square and Roku have in common – but which is the better investment?
The ARK Innovation ETF (NYSEARCA: ARKK) 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, Shopify, Spotify, Roku (NASDAQ: ROKU), and Square (NYSE: SQ). Roku and Square are perfectly positioned as high-growth stocks in the increasingly digitized world we find ourselves in but which is a better buy?
Roku is a service that 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. Roku’s Q1 earnings showed an increase in revenue growth of 79% to $574 million and the firm added 2.4 million active users during the quarter, bringing its total to 52.6 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 early 2021, Roku signed a content acquisition deal with Quibi to bring more content to the platform. The company also landed an exclusivity deal with Saban Films this year too.
However, most notably for the media hardware player was its launch of ‘Roku Recommends’ in May. The idea behind these moves is to help users cut down on browsing time and simply select Roku original content to watch, so it should boost engagement on the platform.
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.
Square’s gamble on focusing on cryptocurrency has really paid off for the firm. The explosion in popularity of Bitcoin is particularly evident in its Q1 results, with revenue up 266% to $5.06 billion. The company said $3.5 billion of that revenue came from Bitcoin transactions, while gross profit from digital assets only totaled $75 million, just 2% of Square’s total revenue.
Outside of crypto, Square has several great features, you can use its trading feature, get a short-term loan, and also get a debit card through the deal it made with Marqueta.
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 by adapting to the world. Roku is forming new deals and adapting its platform to make streaming more, well, streamlined. Meanwhile, 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.