Roku Inc Poised for Near-Term 30%+ Gains?
Roku Inc (NASDAQ:ROKU) has been one of the best-performing tech stocks in 2019, up 212% year-to-date. However, ROKU stock has been under pressure. After hitting a new high on June 20, the stock fell roughly 12% over the next four trading days.
Has ROKU stock been too hot? While the short-term retreat has some analysts predicting that the video-streaming service company will continue to trend lower, the data suggests otherwise.
Roku Inc is a video streaming company with its own proprietary operating system (OS). The company connects users to streaming content though Roku TVs and players. It also operates its own “Roku Channel.”
The company reported solid back-to-back results and is gaining market share. The video streaming industry is crowded, but Roku has a larger audience than the services offered by Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc (NASDAQ:GOOG).
According to Roku, in the first quarter, more than one-third of all smart TVs sold in the U.S. were Roku TVs. This makes the Roku OS the top-selling smart TV OS in the U.S.
And that market share should increase. Through the Roku Channel, viewers can watch free streaming TV and moves, which makes it very attractive to advertisers, content publishers, and TV manufacturers.
Roku raised its full-year guidance for 2019, with revenue projected to increase 40% to more than $1.0 billion. Roku also raised its guidance for gross profit and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
The Los Gatos, California-based company has 29.1 million monthly active accounts, that, during the first quarter, streamed 8.9 billion hours of content. (Source: “Q1 2019 Shareholder Letter,” Roku Inc, May 8, 2019.)
It’s easy to see why. As mentioned earlier, during the first quarter, Roku TVs sold by the company’s original equipment manufacturer partners accounted for more than a third of smart TVs sold in the United States.
Roku player sales were also up 21% year-over-year. Furthermore, Roku Channel, containing over 10,000 ad-supported free movies and TV episodes, continues to attract more viewers as content shifts more to streaming.
During the first quarter, Roku added a premium subscription option to Roku Channel, which now totals more than 30 premium services, including HBO and Showtime.
|ROKU Stock Information|
|Market Cap||$10.6 Billion|
|50-Day Moving Average||$93.16|
|200-Day Moving Average||$62.86|
(Source: “Roku, Inc. (ROKU),” Yahoo! Finance, last accessed June 27, 2019.)
ROKU stock has been on a tear in 2019, increasing more than 210%. In addition to rising on broad-based investor sentiment, this stock has been fueled by strong quarterly results.
ROKU soared in excess of 20% in the days immediately after reporting strong fourth-quarter 2018 results in February and better-than-expected first-quarter 2019 results in May. In total, the stock advanced more than 30% over the following weeks.
That volatility also goes the other way, however. ROKU stock tumbled more than 20% after reporting less-than-enthralling third-quarter results in November.
Still, Roku’s numbers are encouraging: revenue is up, as are active accounts, streaming hours, and average revenue per user.
And the outlook for the company remains strong. Roku increased its guidance for 2019, with full-year revenue now expected to grow, at the midpoint, 40% year-over-year to more than $1.0 billion. This is up from the previous revenue guidance of 36%. (Source: Roku Inc, op. cit.)
Roku is expected to announce its results for the second quarter in early August.
Chart courtesy of StockCharts.com
On May 8, the company announced that its total revenue increased 51% year-over-year to $206.7 million. Platform revenue was up 79%, at $134.2 million, with the number of active accounts increasing 40% year-over-year to 29.1 million.
The number of streaming hours grew 74% to 8.9 billion, average revenue per user was up 27% year-over-year at $19.06, and video and ad impressions more than doubled.
Roku Inc ended the first quarter with cash and cash equivalents of $290.0 million.
The business raised its guidance for fiscal 2019 to a range of $1.03 billion to $1.05 billion. At the midpoint, that represents year-over-year growth of 40%, up from the previous guidance of 36%.
Roku raised its total gross profit outlook to $470.0 million, from the previous guidance of $453.0 million. While EBITDA is expected to be breakeven for 2019, the adjusted EBITDA guidance has been raised to a range of $10.0 to $20.0 million.
For the second quarter, Roku expects its revenue to grow 42% year-over-year to $223.0 million. It also expects gross profit of approximately $101.0 million, up roughly 30% year-over-year.
Roku Inc has had a great year so far. While some tech stocks have benefited from the “January effect” on steroids, ROKU stock has been bullish because of strong financials and an even stronger outlook.
The company’s technology is becoming more popular, and its market share has been increasing and should continue to grow as streaming becomes more sought-after.
Roku’s growing popularity also makes it more attractive to companies such as Netflix, Inc. (NASDAQ:NFLX), Amazon, and Walt Disney Co (NYSE:DIS), not to mention desperate advertisers.
That said, I wouldn’t be surprised if Roku shares rose by at least 30% in the near term.