Why Roku Stock Fell after Its Q4 Earnings


Feb. 18 2020, Updated 11:10 a.m. ET

Roku (NASDAQ:ROKU) stock fell 1.1% in today’s pre-market trading session, as of 8:16 AM ET. On February 14, Roku stock fell 6.33% and closed at $130.25. At the closing price, the company’s market cap was $15.4 billion. Currently, the stock is trading 26.2% below its 52-week high of $176.55 and 154.7% above its 52-week low of $51.14. On a YTD (year-to-date) basis, Roku stock has fallen 2.7% as of February 14. While the Dow Jones Industrial Average has risen by 3.0% YTD, the S&P 500 Index has gained 4.6%.

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Roku stock is down

On February 13, Roku announced its fourth-quarter results. The company reported sales of $411.2 million with an EPS of -$0.13. In the same quarter of the previous year, Roku posted revenues of $275.7 million and an EPS of $0.05. Analysts expected the company to post revenues of $391.6 million and an EPS of -$0.14 in the December quarter. So, why did Roku shares fall despite an earnings and revenue beat? Well, investors weren’t impressed with the company’s 2020 outlook.

According to a MarketWatch report, “Roku’s management gave an upbeat view of revenue for the quarter and year ahead but indicated that spending efforts would continue to weigh on the bottom line, prompting a disappointing earnings forecast.”

Roku has given a net revenue guidance range of $300 million–$310 million for the first quarter. The company also expects a gross profit of $143 million–$148 million and a net loss of $60 million–$55 million. Analysts expect the company to post sales of $305.7 million and an EPS of -$0.41 in the first quarter.

Roku’s management has also given a net revenue guidance range of $1.58 billion–$1.62 billion for fiscal 2020. The company also forecasts a gross profit of $720 million–$740 million and a net loss of $180 million–$160 million. Analysts expect the company to post sales of $1.6 billion and an EPS of -$1.21 in 2020.

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What drove the company’s Q4 sales?

While the total sales rose 4.1% YoY (year-over-year), Roku’s Platform business segment saw 71.5% growth. The Platform business raked in sales of $259.6 million. Now, the business accounts for 63.1% of the total sales.

The company added 4.6 million active accounts in the fourth quarter, which brought the total number of active accounts to 36.9 million at the end of December 31, 2019. The streaming hours rose by 1.4 billion hours sequentially to 11.7 billion. Meanwhile, the average revenue per user rose by 28.9% YoY at $23.14. The gross profit rose by 43.9% YoY to $161.6 million in the fourth quarter.

Analysts increased Roku’s target price

Many analysts raised their target price for Roku stock after the fourth-quarter earnings results.

  • RBC increased its target price from $160 to $170.
  • Susquehanna increased its target price from $150 to $170.
  • Wedbush increased its target price from $105 to $115.
  • Rosenblatt Securities increased its target price from $159 to $190.
  • Oppenheimer increased its target price from $155 to $165.

Roku is covered by 19 Wall Street analysts. Among the analysts, 13 recommend a “buy,” three recommend a “hold,” and three recommend a “sell.” Analysts’ mean target price on the stock is $152.10, which implies a 16.8% gain from the current level of $130.25. The lowest target price estimate is $60, while the highest is $200.00.

Stock’s technicals

Based on Roku’s closing price on February 14, the stock was trading 0.3% below its 20-day moving average of $130.60. Roku is trading 3.5% below its 50-day moving average of $134.95 and 3.0% below its 100-day moving average of $134.33. The stock’s 14-day relative strength index score of 48 suggests that the stock isn’t oversold or overbought.

Roku’s upper, middle, and lower Bollinger Bands are $139.90, $130.58, and $121.26, respectively. The stock closed near its middle Bollinger Band level, which suggests that it isn’t overbought or oversold.

Read Why Roku Shares Could Surge in the Short Term to learn more.


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