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Should You ‘Buy’ Roku Stock after Business Update?

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Roku (NASDAQ:ROKU) stock rose by 13.3% in pre-market trading today after the company announced its preliminary first-quarter results. On April 13, the stock rose by 4.5% and closed at $96.56. Based on the last closing price, the company has a market cap of $11.6 billion. The stock price has risen by 18.5% in the trailing five-day period, while it has risen by 70.9% in the trailing 12-month period.

Currently, Roku stock is trading 45.3% below its 52-week high of $176.55 on September 9, 2019. The stock is also trading 75.5% above its 52-week low of $55.02 on April 18, 2019. On a year-to-date basis, the stock has fallen by 27.9% as of Monday.

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Roku’s first-quarter preliminary results

In the first quarter, Roku expects to report revenues of $307 million–$317 million, which is up from $305 million that the company forecasted in February.

Roku expects to add about 3 million active accounts in the first quarter, which would bring the total number of active accounts to 39.8 million at the end of March 31, 2020. The total number of active accounts was 36.9 million as of December 31, 2019. Streaming hours will likely increase by 4.3 billion hours YoY (year-over-year) to 13.2 billion in the first quarter. As of March 31, 2020, the company’s cash, cash equivalents, restricted cash, and short-term investments were $587 million. Roku will report its first-quarter earnings results after the market closes on May 7.

Roku withdrew its fiscal 2020 financial outlook amid the coronavirus outbreak. In a press release, Roku CFO Steve Louden said, “While we believe that our offerings to consumers, content providers and advertisers will enable our Company to deliver value in these uncertain times, the wider business and consumer impacts, as well as the duration of the pandemic, are unclear and thus we are withdrawing our prior 2020 outlook.”

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Analysts’ recommendations for Roku stock

Among the 19 analysts covering Roku stock, 13 recommend a “buy”—unchanged from the previous month. Meanwhile, four analysts recommend a “hold”—up from three the previous month. Two analysts recommend a “sell”—down from three the previous month. Analysts have an average target price of $140.13 on Roku. The target price implies a return of 45.1% based on the closing price of $96.56 on Monday. The consensus target price for the stock has fallen from $151.72 in March—a fall of 7.6%.

After Roku’s preliminary first-quarter results were announced, RBC Capital analyst Mark Mahaney reduced its target price on the stock from $142 to $139 and maintained an “outperform” rating. According to a report from TheFly, the analyst cited “a 3rd party IAB Ad report and Roku management’s cautious commentary regarding the ad spending environment in cutting his FY20 revenue outlook to $1.46B from $1.51B, with platform revenue growth set to decline materially to 21% in Q2 from 67% in Q1.”

Oppenheimer analyst Jason Helfstein increased its target price on the stock from $110 to $120 and kept an “outperform” rating. Meanwhile, Needham lowered its target price from $200 to $150 on the stock.

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Analysts’ earnings expectations

Roku reported sales of $1.13 billion in 2019—a rise of 52.1% YoY (year-over-year). The company reported an adjusted EPS of -$0.52 in 2019 compared to -$0.08 in 2018. Wall Street analysts expected the company to post sales of $1.11 billion and earnings of -$0.52 in 2019.

Wall Street analysts expect Roku to report sales of $301.75 million in the first quarter. The figure would mark an increase of 46.0% YoY compared to $206.66 million in the first quarter of 2019. Also, analysts expect the company to report an adjusted EPS of -$0.43 in the first quarter compared to -$0.09 in the first quarter of 2019. Currently, analysts expect a 36.6% and 33.1% rise in the company’s 2020 and 2021 revenues, respectively. Analysts also expect an adjusted EPS of -$1.43 and -$0.87 in 2020 and 2021, respectively.

Roku’s stock performance

On Monday, Roku stock was trading 14.4% above its 20-day moving average of $84.37. Meanwhile, the stock is trading 6.7% below its 50-day moving average of $103.49 and 21.0% below its 100-day moving average of $122.22. Roku’s 14-day RSI (relative strength index) score is 54. The RSI suggests that the stock isn’t “oversold” or “overbought.”

Roku has an upper Bollinger Band level of $103.11. The company’s middle Bollinger Band level is $84.37, while its lower Bollinger Band level is $65.62. On Monday, the stock closed near its upper Bollinger Band level, which suggests that it’s overbought. Roku’s 14-day MACD is 3.21, which indicates that the stock is on an upward trading trend.

Read Is Roku Stock a Good Option for Investors? and Why Roku Stock Fell after Its Q4 Earnings to learn more.

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