Roku Earnings Preview: Strong Gains But Looming Competition Creates Uncertainty
Investing.com | Nov 06, 2019 09:45
* Reports 3Q 2019 results on Wednesday, Nov. 6, after the market close
* Revenue Expectation: $256.1 million
* EPS Expectation: -$0.28
For investors seeking high-octane growth, shares of video-streaming platform provider, Roku Inc (NASDAQ:ROKU) have proven to be a great bet.
Roku, which went public in 2017 at the offer price of $14 a share, sells devices that allow users to stream video on their televisions. It also sells advertising on the Roku Channel and allows TV networks to sell spots that target specific audiences. The shares have rocketed almost 900% since then, closing yesterday's session at $139.57.
Over the years, Roku has seen explosive growth as a tech platform that’s already preloaded on certain TVs. According to Bloomberg data, 10 of the top 20 selling TVs on Amazon (NASDAQ:AMZN) are Roku-connected TVs.
To add depth to its revenue base, Roku also sells ads for its free streaming product called The Roku Channel, which offers a variety of network and other TV shows and entertainment. The company’s sales are being driven by advertising in its streaming platform and are expected to rise 48% to $1.1 billion this year.
In its third-quarter earnings report, scheduled to be released today, Roku is expected to show a 50% growth in revenue to about $256 million, according to analysts’ consensus forecast, with an adjusted loss of $0.28 a share. According to a Bloomberg estimate, Wall Street is looking for about 2 million new active accounts added in the quarter, which would represent a gain of 36% over the prior year.
Roku is in a position to triple its user base in the next three years by expanding into global markets as it benefits from growing demand for connected TV devices and advertising, Macquarie analysts said in a note to clients last month. According to its forecast, Roku could reach 72 million users in 2022, up from the 30.5 million active users it reported in the second quarter.
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“We know little about the international roll-out plans, or costs beyond this year, which we assume will rise as marketing demands emerge,” said Macquarie analyst Tim Nollen in a note. “Roku’s growth trajectory internationally could well echo that of Netflix's (NASDAQ:NFLX), which has also tripled over the past 3 years.”
h2 Threat From Bigger Rivals/h2With these strong expectations, some analysts are also raising red flags, calling for caution from the buyers of Roku stock at these high levels. The most significant threat to this great tech success story is from bigger players coming up with their own products.
Facebook Inc (NASDAQ:FB), in September, released a new model of its Portal video chat device that can be connected to a TV and has access to Amazon.com's (NASDAQ:AMZN) streaming service. The Portal TV can be connected to a TV set with standard HDMI cable and has a camera and several microphones to enable video calling via Facebook’s Messenger and WhatsApp services. Comcast Corp (NASDAQ:CMCSA) has recently offered a similar device for its internet-only customers.
The threat of competition has created uncertainty in Roku’s otherwise unchallenged rise. After falling more than 40% since its record high in early September, Roku’s stock is back on its upward journey. Despite sliding 6.6% over the last four trading sessions, its shares are still up more than 350% in 2019, outperforming almost every other technology stock.
Bottom Line
Roku is on track to produce another strong quarterly gain when it reports Q3 earnings today. The company’s growth prospects look bright with a strong cyclical shift to streaming video. The past three reports have proved to be blowouts, with the stock spiking more than 20% in each of the three days that followed the release. That said, Roku’s stock is reacting very negatively to competitive pressures, suggesting the current rally in its shares has peaked and entering now could be a risky move.
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