Roku Could Rally 25% in the Fourth Quarter

Roku Inc. (ROKU) reports Q3 2021 earnings after Wednesday’s closing bell, with analysts looking for a profit of $0.06 per-share on $680.59 million in revenue. If met, earnings-per-share (EPS) will mark a 33% profit decline compared to the same quarter in 2020, when the small cap benefited from COVID isolation. The stock fell 4% in August despite beating Q2 estimates and raising Q3 guidance, and shed another 27% into early October.

High Volatility and Multiple Headwinds

The streaming provider has been hit with multiple headwinds since reversing at February resistance in July, dropping more than 40%, led by the end of COVID lockdowns and resumption of pre-pandemic activities in many countries. In addition, Amazon.com Inc. (AMZN) has launched its own smart TV brand while Apple Inc.’s (AAPL) new iOS 14 ad-tracking options may also impact revenue driven by Roku’s ad-supported platform.

BofA Securities analyst Ruplu Bhattacharya defended the stock after the summer collapse, noting that “while Roku’s active accounts in F2Q were marginally lower than Street (51.1mn vs. Street 51.8mn), we see this as impacted from transitory supply chain issues, and reopening headwinds, vs. market share loss. Investor expectations have been reset in the near term, in our opinion. Moreover, despite reopenings, Roku’s lead in streaming viewership remained intact in C2Q21.”

Wall Street and Technical Outlook

Wall Street consensus has ignored weak price action, posting an ‘Overweight’ rating based upon 20 ‘Buy’, 5 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $310 to a Street-high $640 while the stock is set to open Tuesday’s session just $6 above the low target. This dismal placement reflects a major disagreement with Main Street investors, who have chosen to avoid excessive risk after 2020’s historic 247% return.

Roku mounted the September 2019 peak at 177 in September 2020, entering a powerful uptrend that topped out at 485 in February 2021. The stock fell more than 200 points into May and reversed, recouping the loss into July’s all-time high, which was just six points above the prior peak. The subsequent decline carved the next leg in a broad rectangular pattern that’s now testing range support below 300. The monthly Stochastic oscillator has dropped to the most extreme oversold reading since 2017 at the same time, raising odds for a strong recovery wave.

For a look at today’s economic events, check out our earnings calendar.

Disclosure: the author held no positions in the aforementioned securities at the time of publication.