Roku’s [ROKU] share price has had a turbulent 2020 so far, but following a 53.44% drop during the mid-March market sell-off, the video streaming tech manufacturer has enjoyed an impressive rally, closing 18.03% up year-to-date on 3 August.
Despite this recovery, Roku’s share price is still considerably lower than the $169.86 mark that it hit in early September last year.
So, will Roku’s share price return to its 2019 highs after it releases its second-quarter earnings report?
When is Roku reporting Q2 earnings?
Viewers flock to Roku
Roku’s share price could well see a boost following Q2 earnings if it is able to replicate the success it saw in its last report. The manufacturer could be set for another revenue-beating quarter following solid Q1 earnings in early May, powered by users binging on TV shows and movies during the COVID-19 lockdown.
The company posted an earnings loss of $0.45 per share on revenues of $321m, both of which beat market expectations. It also added 2.9 million active accounts, with average revenue per user up 28% year-over-year.
Number of active accounts Roku added in Q1
Anthony Wood, Roku’s CEO, credited this success to the “accelerated shift from linear TV viewing to streaming” during the pandemic, adding that it had become more relevant to customers than ever before.
Advertising cancellations were higher than normal, but this was partially offset by ad-spend from traditional TV budgets and did not have a notable impact on Roku’s share price.
TCL Technology — a smart TV manufacturer that uses Roku’s streaming hardware — could help to boost ad spend in the upcoming quarter.
“Roku had 45% (40 million of 88 million) of total connected TV homes in the US [at the end of March], and therefore we believe Roku will be the winning aggregator of streaming TV and film content apps,” Laura Martin, analyst at Needham, said.
“Roku had 45% (40 million of 88 million) of total connected TV homes in the US [at the end of March], and therefore we believe Roku will be the winning aggregator of streaming TV and film content apps” - Laura Martin, analyst at Needham
Is a Q2 earnings beat on the cards?
Roku has withdrawn its outlook for the full year due to the general economic uncertainty. However, it has already revealed that April demand remained strong, with active accounts up 38% on the same month last year. Streaming hours also jumped 80% during the month, which suggests Roku’ s share price could well rise following Q2 earnings.
According to Zacks, Roku is likely to post a loss in earnings of $0.56 per share in the second quarter, marking a year-over-year decline of 600%, while revenues are pegged to go up by 20.8% to $302.17m.
Martin expects a 39% jump in new accounts and a 46% rise in hours streamed, while advertising growth is expected to slow to 38% in the second quarter.
Roku's expected Q2 revenue - a 20.8% rise
She has a Buy rating on the stock and a $150 target, which would represent a 7% downside on Roku’s share price through 3 August’s close. She forecasts an advertising boom ahead for the group, and believes brands are currently holding back around $7bn in TV ads.
More optimistically, Tyler Craig of InvestorPlace suggests that a target price of $176.55 — a 6% upside on Roku’s share price through 3 August’s close — could be realistic over the coming weeks. “Unlike Apple or Amazon, which have already rocketed into orbit, Roku shares are just now blasting off,” Craig said.
While many other share prices will plummet again should a second global wave of the coronavirus hit, Roku’s share price is unlikely to waver should further lockdowns leave people at home with their televisions once more.
However, Benjamin Swinburne, an analyst at Morgan Stanley, is not convinced. He has an Underperform rating on the stock and a $110 price target.
Swinburne is concerned that Roku is not doing enough to monetise the shift in consumers and advertisers to streaming platforms, and notes rising tension with content publishers such as AT&T and Comcast. These, alongside more competition from TCL’s Android TV rollout, are “potential risks to long-term earnings power”.
Overall, it is clear that consumers, particularly younger viewers, are favouring streaming services over being tied to traditional TV schedules. This is a trend which seems likely to continue strengthening.
According to Market Screener, the majority of analysts are bullish on the stock, with a consensus Outperform rating and an average target price of $134. This target represents a 19.5% downside on Roku’s share price through 3 August’s close. Q2 results may well help to unify analysts’ opinions, and investors will no doubt be waiting for them with bated breath.
|Operating Margin (TTM)||-8.49%|
|Quarterly Revenue Growth (YoY)||55.2%|
Roku share price vitals, Yahoo Finance, 4 August 2020
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.