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Is Roku Stock Still A Buy Despite 'Disappointing' Q3?
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Shares of Roku (ROKU - Free Report) continued to fall Friday despite the company’s third quarter top and bottom-line beats Wednesday. It seems that investors were disappointed with the company’s platform revenue growth, but the company and Roku stock appear strong in a streaming entertainment age that is only growing.
Roku Overview
Roku, which went public in the fall of 2017, sells devices that allow customers to watch streaming services such as Netflix (NFLX - Free Report) and Amazon (AMZN - Free Report) Prime all in one place, similar to Apple (AAPL - Free Report) TV or Google’s (GOOGL - Free Report) Chromecast. Meanwhile, the Roku Channel lets users watch streaming movies and TV shows for free without a subscription. The company also has a newer, more advanced targeted advertising business.
Price Movement
Roku shares had surged since the firm went public at $14 per share in September 2017. Roku stock hit $77.57 in early October, but has plummet since then.
Investors should note that Roku stock rested at $43.47 per share through late afternoon trading Friday after a significant post-Q3 selloff. Therefore, shares of Roku are down roughly 44% from their 52-week high, which sets up what could prove to be a great buying opportunity since the company itself looks strong.
Q3 Overview
Roku on Wednesday reported total quarterly revenue of $173.4 million. This marked a 39% jump from the year-ago period and easily topped our $170.91 million Zacks Consensus Estimate. The company did post an adjusted quarterly loss of $0.09 per share, which came in significantly lower than our projected loss of $0.13.
The streaming firm’s platform revenues soared 74% from $57.5 million in the year-ago period to reach $100.1 million, this also marked an 11% jump from Q2. Despite the impressive growth, Roku’s platform revenues came in below FactSet’s $103.2 million forecast. And if this is all that caused the massive drop off then Roku might be in good shape.
The Good
Roku’s active accounts surged 43% to 23.8 million, while streaming hours soared 63% to 6.2 billion. Investors should also pay close attention to average revenue per user as they do for Facebook and others. Roku saw its ARPU jump 37% to a record $17.34—over a trailing 12-month basis.
Meanwhile, the company’s vital and growing platform revenue accounted for 58% of total revenue, compared to 46% in the year-ago period. Roku noted that over two-thirds of this revenue came from advertising-based services. “As our scale has increased, Roku has become a more important platform for content providers and advertisers, driving both engagement and monetization,” the company wrote in a letter to shareholders.
“TV advertising shifting to streaming represents our largest opportunity over the long-term as we capture an increasing share of advertising inventory and as content partners and brand sponsors engage directly with our users in the Roku user interface.”
Outlook
It is worth noting that the company estimates that more than 25% of all smart TVs sold in the U.S. in 2018 have been Roku TVs. This marked a jump from approximately 20% in 2017 and 13% in 2016. TVs with Roku’s services built-in have become extremely important. Roku noted that over half of its new accounts came from licensed sources, with a large chunk of that coming from Roku TVs.
Roku now expects to post Q4 revenues in the range of $255 million to $265 million. Our current Zacks Consensus Estimate projects fourth quarter revenues will surge 38.5% to reach $260.65 million. Meanwhile, the company expects full-year revenue between $722 million and $732 million—our full-year revenue estimate currently calls for $723.14 million, which would mark a 41% surge.
At the other end of the income statement, Roku is expected to post an adjusted full-year loss of $0.08 per share. This would actually represent a nearly 94% surge from fiscal 2017.
It is worth noting that these estimates could change as analysts continue to reevaluate the firm following its Q3 earnings report. Still, Roku’s position in the booming streaming TV industry, along with its growth prospects and its current discount compared to where it has traded could make Roku stock worth considering.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Is Roku Stock Still A Buy Despite 'Disappointing' Q3?
Shares of Roku (ROKU - Free Report) continued to fall Friday despite the company’s third quarter top and bottom-line beats Wednesday. It seems that investors were disappointed with the company’s platform revenue growth, but the company and Roku stock appear strong in a streaming entertainment age that is only growing.
Roku Overview
Roku, which went public in the fall of 2017, sells devices that allow customers to watch streaming services such as Netflix (NFLX - Free Report) and Amazon (AMZN - Free Report) Prime all in one place, similar to Apple (AAPL - Free Report) TV or Google’s (GOOGL - Free Report) Chromecast. Meanwhile, the Roku Channel lets users watch streaming movies and TV shows for free without a subscription. The company also has a newer, more advanced targeted advertising business.
Price Movement
Roku shares had surged since the firm went public at $14 per share in September 2017. Roku stock hit $77.57 in early October, but has plummet since then.
Investors should note that Roku stock rested at $43.47 per share through late afternoon trading Friday after a significant post-Q3 selloff. Therefore, shares of Roku are down roughly 44% from their 52-week high, which sets up what could prove to be a great buying opportunity since the company itself looks strong.
Q3 Overview
Roku on Wednesday reported total quarterly revenue of $173.4 million. This marked a 39% jump from the year-ago period and easily topped our $170.91 million Zacks Consensus Estimate. The company did post an adjusted quarterly loss of $0.09 per share, which came in significantly lower than our projected loss of $0.13.
The streaming firm’s platform revenues soared 74% from $57.5 million in the year-ago period to reach $100.1 million, this also marked an 11% jump from Q2. Despite the impressive growth, Roku’s platform revenues came in below FactSet’s $103.2 million forecast. And if this is all that caused the massive drop off then Roku might be in good shape.
The Good
Roku’s active accounts surged 43% to 23.8 million, while streaming hours soared 63% to 6.2 billion. Investors should also pay close attention to average revenue per user as they do for Facebook and others. Roku saw its ARPU jump 37% to a record $17.34—over a trailing 12-month basis.
Meanwhile, the company’s vital and growing platform revenue accounted for 58% of total revenue, compared to 46% in the year-ago period. Roku noted that over two-thirds of this revenue came from advertising-based services. “As our scale has increased, Roku has become a more important platform for content providers and advertisers, driving both engagement and monetization,” the company wrote in a letter to shareholders.
“TV advertising shifting to streaming represents our largest opportunity over the long-term as we capture an increasing share of advertising inventory and as content partners and brand sponsors engage directly with our users in the Roku user interface.”
Outlook
It is worth noting that the company estimates that more than 25% of all smart TVs sold in the U.S. in 2018 have been Roku TVs. This marked a jump from approximately 20% in 2017 and 13% in 2016. TVs with Roku’s services built-in have become extremely important. Roku noted that over half of its new accounts came from licensed sources, with a large chunk of that coming from Roku TVs.
Roku now expects to post Q4 revenues in the range of $255 million to $265 million. Our current Zacks Consensus Estimate projects fourth quarter revenues will surge 38.5% to reach $260.65 million. Meanwhile, the company expects full-year revenue between $722 million and $732 million—our full-year revenue estimate currently calls for $723.14 million, which would mark a 41% surge.
At the other end of the income statement, Roku is expected to post an adjusted full-year loss of $0.08 per share. This would actually represent a nearly 94% surge from fiscal 2017.
It is worth noting that these estimates could change as analysts continue to reevaluate the firm following its Q3 earnings report. Still, Roku’s position in the booming streaming TV industry, along with its growth prospects and its current discount compared to where it has traded could make Roku stock worth considering.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>