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Roku Stock: What to Make of Recent Dip
Stock Analysis & Ideas

Roku Stock: What to Make of Recent Dip

For the second time this year, Roku (ROKU) stock has suffered a bear market sell-off, with a peak-to-trough decline of 34.9%.

For investors in the streaming hardware firm, it’s been nothing short of a turbulent ride.

Roku is still likely in the early stages of its growth story. Its second quarter, however, revealed growth that didn’t quite live up to the stock’s hefty price tag.

Amid the latest price drop, I’m more inclined to stay neutral on the name. (See Roku stock charts on TipRanks)

Roku: Q2 Wasn’t Good Enough

Roku delivered an exceptional earnings beat, with $0.52 in per-share earnings, crushing the Street consensus, which called for $0.13.

Revenue soared to $645 million, up an incredible 81% year-over-year, and topping management’s original guidance. Upon first glance, it was yet another big beat for Roku. Investors found hair on the quarter, though, hence the stock’s negative post-earnings reaction.

For the quarter, Roku’s account additions came in at 1.5 million. That’s impressive, but given COVID-19 tailwinds and that the number was down on a year-over-year and quarter-over-quarter basis, there is some concern that user growth could grind to a slowdown.

Competition Looks Fierce

Although Roku has carved out a considerable portion of the streaming hardware market, one can’t help but notice that the industry is getting wildly competitive, with tech behemoths (think specific members of the FAANG cohort) making aggressive pushes to win over users.

Add global hardware supply chain issues into the equation, and a potential reversal of streaming momentum in the post-pandemic environment into the equation, and it’s tough to get behind Roku stock amid the selling pressure.

On the plus side, Roku’s ad business has picked up meaningful traction of late. Its ad-supported content has really been hitting the spot with certain consumers.

If it can continue executing in ads, Roku can more than offset any medium-term hardware pressures. That’s a big “if” going into an industry environment that could be far less favourable in 2022.

Hardware sales have already slowed down considerably since the pre-pandemic era. The key to Roku’s growth is in higher-margin businesses, and if it can keep the competitors at bay, there’s no question that Roku can leverage network effects to its advantage, and make a sustained push toward profitability.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, ROKU stock comes in as a Strong Buy. Out of 17 analyst ratings, there are 14 Buy recommendations, two Hold recommendations, and one Sell recommendation.

The average Roku price target is $475. Analyst price targets range from a low of $310 per share, to a high of $650 per share.

Bottom Line

Roku continues to perform somewhat decent, but with shares trading at over 17 times sales, it looks a bit pricey. The competition looks fierce as well.

Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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