Why Is Roku Stock Tanking?

Roku (ROKU) stock tanked more than 5% on Tuesday during market hours. The company said it will issue nearly 1 million common shares today.

Meanwhile, the broader indices were trading down marginally. The Dow Jones Industrial Average fell 0.32% while the S&P 500 slumped 0.23%

Roku raises money, resulting in a falling stock price

Roku, a major media streaming company, is seeking to secure more than $100 million through the sale of common stock. In this process of offering shares, the company entered into an equity distribution agreement with the Citigroup Global Markets. Further, Roku expects to supply stock priced at about $133 each. This price would result in total sales of $130 million. Also, Citigroup will be eligible to receive a fee payment of nearly 2% of the gross sale proceeds.

Plus, Roku mentioned in its filing that certain shareholders will be offered nearly 571,459 shares. This news might relate to the company’s plan to take over video advertising company Dataxu for about $150 million in October 2019. Roku concluded this acquisition in early November 2019.

On Monday, November 18, the stock’s closing price was $160.12. However, on Tuesday, in the pre-market session, the stock declined more than 2%. And in the early trading hours, the stock price slumped more than 5%. Plus, Roku stock has been on a spree. It soared more than 377% year-to-date.

Roku’s money needs stem from rapid growth

Roku said it will deploy its proceeds to finance capital expenditures and operating expenses involved in expanding its business. This total consists of debt repayment and selling expenses, among the other activities. Also, the company said it will use the money raised to “acquire or invest in businesses, products and technologies” that will further support growth.

Roku is aiming to expand fast, given that consumers are switching to streaming devices. Early this month, the company reported that it had 32.3 million active users, reflecting more than a 5% increase versus its subscriber numbers at the end of the June 2019 quarter.

Initially, Roku aimed at providing streaming boxes and equipment to accompany TV sets. Now it has also grown to enter into contracts with TV set manufacturers to use its software across TV devices. Moreover, it’s offering its services at discounted prices to expand its customer base. This strategy, in turn, will lead to growth in Roku’s business.