Opinions
Grant White
Roku Inc
ROKU-Q
HOLD
Aug 09, 2024
Stock price when the opinion was issued
You might be interested:
Roku pioneered streaming to the TV. We connect users to the streaming content they love, enable content publishers to build and monetize large audiences, and provide advertisers with unique capabilities to engage consumers. Roku streaming players and TV-related audio devices are available in the U.S. and in select countries through direct retail sales and licensing arrangements with service operators. Roku TV™ models are available in the U.S. and in select countries through licensing arrangements with TV OEM brands. Roku is headquartered in San Jose, Calif. U.S.A. Social media mentions are up 79% in the past 24h.
EPS was -35c, vs estimates of -63c. Sales were $881M vs $850M estimates. The stock is down as management noted it expects EBITDA to moderate in the second half of the year. Average revenue per user could decline. Sales did rise 19% in Q1. Though 2Q guidance was in line with consensus, it may be premature to assume pressures have eased. Tough comparisons will create 2Q headwinds and higher marketing spending will likely weigh on 2H Ebitda. Average revenue per user in 1Q improved sequentially, but there is growing competition in the connected-TV ad space, especially with the launch of Amazon Prime video ads. Comparisons are tough in part due to a cooldown in the streaming wars and a lapping of price hikes, which may crimp platform revenue gains to high-single-digits. While platform gains should accelerate in 2025, pressures may build after the Walmart-Vizio deal closes, especially in active account growth. The outlook is certainly 'less great' but with the stock decline we think this is reflected in the new valuation.
Unlock Premium - Try 5i Free
ROKU operates as an operating system to consolidate all streaming providers into one platform, a very favourable market position. In the last five years, revenue growth was healthy and consistently above 20%, although it slowed down in recent quarters to around low double-digits. The balance sheet is strong, with a net cash of $1.4B compared to the market cap of $7.8B. The company has been growing strongly over the years. As a stock, ROKU’s share price has underperformed partially due to a high starting valuation. We think ROKU at the current price is quite attractive if the company can manage to continue to grow and be more disciplined on the cost side. Based on consensus estimates, sales are expected to grow by 12% on average over the next few years. It does generate good cash flow ($456M last year) and thus we would not see solvency as a concern.
Unlock Premium - Try 5i Free
Roku is speculative, with a choppy chart, but it may have bottomed last week below the 200-day moving average and has rebounded to the mid-80s. The Chaikin Money Flow (CMF) remains bearish, ugly. A momentum indicator--MACD--is about to make a bullish crossover. Lang expects a breakout to $105, recent highs. This is good for call options. Could go sideways a few weeks, though.
He, too, had higher hopes. If you already own, consider continuing to hold. Don't add, too many headwinds. Wants to see more consistent revenue growth, improved profitability, expanded user base. Challenging space.