Is Roku’s share price one to watch?

A tough start to the year saw Roku’s [ROKU] share price falter in the first half but, as markets recovered, so did the stock. Roku’s share price has been growing steadily since the summer and even set itself an all-time high last month. As of close on 3 November, Roku’s share price recorded a year-to-date rise of 48.42%. At $203.49, it is sitting 249.5% above its 52-week low. Following the previous quarter’s results, Roku’s share price began to slide. Will this be repeated following the release of its Q3 earnings report on 5 November?

Roku’s share price had a shaky start to the year and ended up falling 52.3% on 16 March to close at $63.84 — the stock’s lowest value since May 2019. 

Although it took Roku’s share price less than two months to recover and start trading above its 2020 opening price of $135.99, the stock fell again and stayed in the red until early July. Since then, however, Roku’s share price has been on a steady upwards trajectory and reached an all-time intraday high of $239.14 before closing slightly lower at $238.57 on 13 October. 

Roku’s earnings hit

When Roku announced its second-quarter results on 5 August, it posted revenues of $356.07m for the quarter, which beat the consensus estimate from Zacks Equity Research for the fourth time running, this time by 17.84% — representing a 42.3% growth from 2019’s Q2 revenues of $250.10m.

In a letter to shareholders, founder and CEO Anthony Wood highlighted how the second quarter had paid witness to Roku’s largest-ever net increase in active accounts outside of a fourth-quarter holiday period. Like many of its rivals, the on-demand streaming service saw heightened demand amidst global lockdowns.

Roku did post a loss of $0.35 per share, but surpassed the Zacks consensus estimate of a $0.55 loss per share. This presented a surprise of 36.3% and marked the fourth consecutive quarter during which the company beat earnings estimates.  

Despite beating forecasts, Roku’s share price dropped just short of 7% to close at $153.87 the day after its second-quarter results announcement. This was the start of a downward trend lasting almost a month.

Looking ahead to upcoming earnings, Roku is expected to report a loss of $0.41 per share, a decline of 86.4% from the prior-year quarter. Meanwhile, revenues are expected to grow 42% year over year to $370.68m. 

For the full year, Zacks is calling for a loss of $1.44 per share, a year-over-year loss of 176.9%, and revenue 41.16% higher than 2019 at $1.59bn. 

Expansive goals

KeyBanc analyst Justin Patterson downgraded Roku to Sector Weight from Overweight without a price target.

“Roku is still in the early stages of expansion, and coming from behind in markets where Android (Europe) and TV OEMs (Asia) have large installed bases,” Patterson wrote in a note, according to Benzinga.

Patterson wrote that “Roku needs new catalysts to outperform,” and added that international growth “is the next leg of the story, and we believe success takes time,” according to Seeking Alpha.

“Roku is still in the early stages of expansion, and coming from behind in markets where Android (Europe) and TV OEMs (Asia) have large installed bases” - KeyBanc analyst Justin Patterson

However, journalist John Ballard has a more positive perspective. “Investors shouldn't worry about valuation during these early growth stages,” Ballard wrote in The Motley Fool. He suggested that the company’s current market capitalisation of $28bn is nothing compared to what it could become, comparing it to the likes of Netflix and Spotify.

“Investors are placing a high value on companies involved in streaming because that's the future of entertainment. Roku will ride those coattails,” Ballard wrote.

“Investors are placing a high value on companies involved in streaming because that's the future of entertainment. Roku will ride those coattails” - John Ballard

Among 24 analysts polled by CNN Money, the consensus is to Buy the stock. This comes from a majority of 16, while six rate the stock a Hold and two rate it a Sell. Meanwhile, Zacks has a consensus Hold rating on the stock.

Among 23 analysts offering 12-month share price forecasts on CNN Money, the median target is $185, with a high estimate of $255 and a low of $65. The median estimate would represent a 9.09% decrease from Roku’s share price as of close on 3 November.