Can the Roku share price hit fast-forward?

Roku’s [ROKU] stock price has hit the rewind button since reaching a new high over $490 at the end of July, with a number of different factors combining to prompt investors to pause and take profit in the US streaming pioneer.

But has the sell-off in the digital media player manufacturer and streaming services provider been overcooked?

What’s happening with the Roku share price?

Roku’s share price has fallen 5.61% over the last month, closing at $324.10 on Friday 17 September. Year-to-date the share price is almost unchanged, having increased just 1.95%. Looking back over the past 12 months though, Roku’s share price is up an impressive 71.64%, hitting an all-time high at $490.76 on 27 July. But since then, it’s pretty much been a downward spiral, with Roku’s share price slipping 33.96% into the close last Friday.

The stock is currently trading near its 200-day moving average, with support near $275 and resistance close to $490, which provides a significant trading range and suggests Roku’s share price has more upside than downside potential.

What’s caused Roku’s share price decline?

Roku’s Q2 results released in early August showed a dip in platform usage. Streaming hours in Q2 fell from 18.3bn to 17.4bn quarter-on-quarter, as more people ventured outdoors with the Covid-19 lockdowns subsiding. Active account numbers climbed 28% year-on-year to 55.1m, but this still represented the slowest level of growth since 2017, report Economy Watch.

The company also warned that margins are likely to come under pressure as supply constraints and cost increases eat into its bottom-line performance over the next two quarters, prompting two analysts to cut their target price for Roku, report Forbes.

Perhaps adding to the bearish sentiment around Roku’s stock, ARK Invest founder and CEO, Cathie Wood, made a series of Roku share sales from the ARK Innovation ETF [ARKK] through July, totalling more than half a million shares – this despite Wood previously telling investors they would be making a mistake by selling stay-at-home stocks like Roku, according to Forbes.

Can the stock turn around after a poor month?

Despite the apparent doom and gloom which is reflected in Roku’s share price fall, there are a number of reasons for optimism, which could suggest a potential buying opportunity. This year is likely to be the company’s first profitable year, with positive earnings expected to grow by 25% in 2022, report Forbes.

And while total streaming hours fell in Q2, Roku outstripped analysts' expectations on a number of metrics, including earnings per share of 52 cents on revenue of $645m, well ahead of estimates of 13 cents and $618m respectively. Q2 revenue jumped 81% from the same period in 2020, while average revenue per user leapt 46% to $38.46 year-on-year, again smashing analysts’ estimates of $35.30.

In a further possible boost for investors, ARKK has more recently been buying back into Roku. Wood is perhaps enticed by the recent share price decline. On three separate occasions since 5 August, ARKK has bought a total of 489,666 Roku shares, giving the stock a 5.05% overall weighting and making it the fourth-biggest holding in Wood’s fund, as on Friday 17 September.

The company will also be hoping that the launch of original content could boost the Roku share price, after revealing it will release its first original film, ‘Zoey’s Extraordinary Christmas’, for the US holiday season, as well as in Canada and the UK. The move is part of its expansion into original content. The Verge reports that CEO Anthony Wood sees Roku’s future “as an ad-focused company rather than a hardware-focused one.”

What’s next for the Roku share price?

The 22 analysts on CNN offering 12-month price forecasts for Roku’s share price have a median target of $486.50, which represents a potential upside of 50.11% on Friday’s close at $324.10. There are 20 ‘buy’, five ‘hold’, and two ‘sell’ ratings, and the current consensus among 27 polled investment analysts is to ‘buy’ Roku stock.

Needham analyst Laura Martin agrees, suggesting that investors should buy Roku shares based on the post-earnings weakness: “we believe digital markets are winner-take-most markets and ROKU is the winning AVOD (advertising video on demand) aggregation platform for films and TV series.”