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Cramer digs into Roku's IPO to see if the streaming stock is worth your time

  • "Mad Money" host Jim Cramer goes over the pros and cons of Roku's business to see if the stock is fit for your portfolio.
  • Roku, a streaming platform, is a pure-play on cord-cutting and dwindling cable subscriptions, Cramer says.
  • But competition and profitability could threaten the newly public company, Cramer adds.

Shares of streaming platform Roku surged after its Thursday initial public offering, so CNBC's Jim Cramer decided to find out if the company was fit for your portfolio.

"Judging by the strength of its IPO, there's a lot to like here. Roku's been growing at a solid clip, and [as] the maker of the No. 1 streaming platform, this may be the best single play on cord-cutting around," the "Mad Money" host said. "But, and this is a big but, after doing a little digging, candidly, I have some serious reservations about the stock, at least at these prices."

Roku pioneered the idea of streaming directly to your television. The company sells a small box that can access 4,500 different streaming channels including Netflix, Hulu and HBO Go.

Roku also licenses its operating system to smart TV manufacturers and cable and satellite companies and has a bustling advertising business selling ad spots and brand sponsorships.

Cramer saw some clear positive to Roku's business model. First, the company is central to consumers who are opting out of traditional cable providers and moving to web-based content consumption. Plus, not only is Roku's user base accelerating, but users are progressively watching more and more content.

Second, while Roku competes with the likes of Google Chromecast, Amazon Alexa and Apple TV, all of its rivals are more focused on other segments of their businesses.

"I'm a big believer in Apple, but if you're buying it as a cord-cutting play, you are out of your mind because the Apple TV just isn't big enough to move the needle," the "Mad Money" host said.

Third, the company has a solid balance sheet, and Cramer said the $126 million Roku raised in its IPO makes it look even better.

But Cramer had to consider the negatives. While Amazon, Apple and Alphabet's Google may not be laser-focused on their streaming products, being caught in their crosshairs hasn't exactly been a positive for companies, he said.

Moreover, Roku's path to profitability doesn't seem crystal-clear. Its revenue may be growing, but the company has been losing money for some time and increasing competition from both the big dogs in tech and gaming consoles that stream video like PlayStation isn't exactly reassuring.

The company's also torn between two businesses: the platform it licenses, which now accounts for nearly half of Roku's sales, and the box it sells to consumers, sales of which decreased by 15 percent in the first quarter.

Cramer said that while moving from hardware to software would be a good strategy for Roku, if it had to sell its players at a loss to do so, it would make it even harder to turn a profit.

"So there are a lot of question marks about the company. But as for Roku the stock, well, let me just say I don't want you to buy it up here," the "Mad Money" host said. "If you got in on the amazing Roku IPO, good for you. You made a fortune. But when you dig deeper into the story, it's clear that there are a lot of things that could trip up investors. I don't want you to get burned. I say take a pass up here. Maybe Roku can transform into a profitable business, but I don't recommend betting money on it. And if you got some on the deal, congratulate yourself. But first, ring the register on half Monday morning and let the rest run."

WATCH: Cramer weighs Roku's pros and cons

Disclosure: Cramer's charitable trust owns shares of Apple and Alphabet.

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