Shares of Roku (ROKU - Free Report) skyrocketed 25% Monday after the streaming TV firm reported some compelling early fourth-quarter operating results. The company also recently announced an Amazon (AMZN - Free Report) -style move that could help it become even more popular. So, the question is should investors consider buying shares of the streaming firm on the dip while they still can?
Strong Early Q4
Roku released on Monday a few preliminary Q4 2018 operating metrics. The firm’s active accounts surged roughly 40% from the year-ago period to reach 27 million. Meanwhile, in yet another sign that the Netflix (NFLX - Free Report) -driven streaming age is only growing, Roku’s total streaming hours skyrocketed approximately 68% to hit 7.3 billion.
The company’s impressive fourth-quarter growth helped Roku’s total full-year 2018 streaming hours surge 61% to roughly 24 billion. Roku is projected to release its complete Q4 and full-year financial results on February 20.
Roku is coming off a third-quarter that saw its revenues surge 39% to reach $173.4 million, which easily beat our Zacks Consensus Estimate. And the company’s adjusted quarterly loss came in significantly lower than our estimate. Still, shares of Roku plummeted after it reported its Q3 results on the back of a platform revenue miss in early November.
Overall, investors can see that Roku stock has been turbulent since the firm went public at $14 a share in September 2017. Despite Monday’s 25.05% climb during regular trading hours, which helped its shares hit $42.18, Roku stock rests roughly 46% below its 52-week high of $77.57. Therefore, now might be a good time to think about buying Roku stock.
Roku sells devices that allow customers to watch streaming services such as Netflix and Amazon Prime all in one place. The Los Gatos, California-based company currently boasts a larger market share than rivals like Apple TV (AAPL - Free Report) , Amazon Fire TV, and Google’s (GOOGL - Free Report) Chromecast, according to eMarketer.
Plus, the Roku Channel lets users watch streaming movies and TV shows for free without a subscription. The firm also sells advertising on the Roku Channel and it recently introduced a marketplace that allows TV networks to sell targeted ads.
Earlier this month, Roku said it would allow users to buy pay-TV subscriptions through its Roku Channel, much like how Amazon lets users purchase HBO and other subscription-based services through its Prime Video platform. The company hasn’t struck deals with Hulu or Netflix for its new service and it’s unclear exactly what percentage, if any, Roku is set to make from in-channel purchases.
But the firm is ready to offer the ability to purchase CBS’ (CBS - Free Report) Showtime, as well as Starz, Epix, and more by late January. “As a top five channel by active account reach, The Roku Channel is already a great source for free, ad-supported entertainment and provides significant user engagement,” Roku VP of Programming and Engagement Rob Holmes said in a statement.
“By making it easy for users to discover, subscribe to and watch Premium Subscriptions, we believe this offering will result in increased subscriptions and user engagement for our subscription partners and an even better user experience.”
Looking ahead, our current Zacks Consensus Estimate calls for the company’s Q4 revenues to climb 38.8% to hit $261.25 million. Peeking even further ahead, the company’s fiscal 2019 revenues are projected to surge 34.3% above our 2018 estimate to touch $977.71 million.
Meanwhile, at the other end of the income statement, Roku is expected to post an adjusted full-year loss of $0.13 a share. This would, however, represent a 94% surge from fiscal 2017. But at this point, investors shouldn’t be concerned with the company’s bottom-line as it tries to expand.
Last quarter, over half of Roku’s new accounts came from licensed sources, with Roku TVs accounting for a large chunk of that growth. Investors should note that the firm estimated at the end of Q3 that more than 25% of all smart TVs sold in the U.S. in 2018 were Roku TVs, up from roughly 20% in 2017 and 13% in 2016.
Clearly, Roku boasts some fundamentals that make it an intriguing stock to consider amid in the booming streaming TV market that is only set to grow this year with the expected entrance of Apple, Disney (DIS - Free Report) , and AT&T (T - Free Report) . And let’s not forget that not too long ago Netflix was simply an aggregator.
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