Roku Tops Q4 Earnings Estimates; Provides Upbeat Guidance

Roku, an American publicly-traded company that manufactures a variety of digital media players for video streaming, reported better-than-expected earnings in the holiday quarter with total active accounts rising 14.3 million in the year to 51.2 million.

San Jose, California-based video-streaming device maker said its total net revenue surged about 60% to $649.9 million, above the market expectations of $617.25 million. Adjusted profit came in at $0.49 per share, beating the Wall Street consensus estimates of $0.05 per share.

“There is often a degree of noise in ROKU‘s results mainly due to the revenue structure complexity in the Platform segment, which, in some quarters, masks strong core business results. We don’t see any noise this quarter and think the stock should react positively. Video advertising Y/Y growth accelerated to >100%; the commentary on the growth in SVOD subscription revenue stands out as an incremental positive,” said Vasily Karasyov, equity analyst at Cannonball Research.

However, Roku‘s shares, which surged nearly 150% last year, dipped about 1% to $452.99 on Thursday. The shares rose as high as 3% in extended trading.

The digital media hardware company forecasts total revenue in the range of $478 million and $493 million for the first quarter. That was higher than the market expectations of nearly $462 million.

Roku Stock Price Forecast

Sixteen analysts who offered stock ratings for Roku in the last three months forecast the average price in 12 months of $413.60 with a high forecast of $500.00 and a low forecast of $250.00.

The average price target represents a -8.70% decrease from the last price of $452.99. From those 16 analysts, ten rated “Buy”, five rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $275 with a high of $450 under a bull scenario and $150 under the worst-case scenario. The firm gave an “Underweight” rating on the video-streaming device maker’s stock.

“Roku‘s Platform segment revenue growth benefited from both secular and COVID-19-related tailwinds. Gross margins a notable standout. Looking ahead, 1Q guidance is in-line and the company noted 2H deceleration likely. Remain ‘Underweight’ as valuation reflects success in our view,” said Benjamin Swinburne, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. Truist Securities raised the target price to $390 from $220. Deutsche Bank upped their price objective to $400 from $260 and gave the stock a buy rating.

Moreover, JP Morgan set an overweight rating and a $475 price objective. Zacks Investment Research gave a buy rating and set a $352 price target. Citigroup increased their price target to $460 from $375 and gave the company a buy rating.

Analyst Comments

“We believe the market is underestimating the competition on Platform active accounts in the U.S., as well as the time it takes for international expansion to scale. Active account growth has benefited strongly in the U.S. from share gains at TCL, and sustained growth will require additional share gains or major new smart TV partners,” Morgan Stanley’s Swinburne added.

“We believe the market may be underestimating the ability to monetize strong streaming hours growth long term. Not all hours are equally valuable to Roku, and impressive hours growth reported by Roku is at least in part driven by ‘cable’ TV viewing benefit from MVPDs that are likely structurally less valuable to Roku than hours of long-tail publishers.”

Upside and Downside Risks

Risks to Upside: Strong user adoption increases scale and leverage against content partners to secure greater advertising-supported content; international expansion can drive incremental advertising – highlighted by Morgan Stanley.

Risks to Downside: New product/feature launches by competitors could pressure Roku‘s account growth and time spent. Competitors could announce competing software licensing deals with smart TV manufacturers.

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