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Can Roku Stock Continue to Rise after Its Q1 Earnings?

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Roku (NASDAQ:ROKU) stock has risen before its first-quarter earnings results. The company will likely release its first-quarter results on May 7 after the market bell. Roku stock gained 9.02% on Monday and closed the trading day at $124.30. At Monday’s closing price, the company’s market value was around $15 billion. Currently, Roku stock is trading at a 29.6% discount from the 52-week high of $176.55. The shares are trading at a premium of 113.5% from the 52-week low.

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What to expect from Roku’s Q1 earnings

According to Roku’s preliminary results announced last month, the revenues would be $307 million–$317 million in the first quarter. The company’s streaming services will likely add around 3 million active users in the quarter, which brought the total active accounts to 39.8 million as of March 31. The company expects the streaming hours to increase by 4.3 billion hours (or 49% higher on a YoY basis) to 13.2 billion in the quarter.

During the preliminary results, Roku CFO Steve Louden also withdrew its fiscal 2020 financial outlook. In the press release, he said that “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.” Earlier, the company provided revenue guidance of $1.6 billion for 2020.

Wall Street analysts expect Roku to report sales of $306.72 million in the first quarter. The figure would mark an increase of 48.4% YoY compared to $206.66 million in the first quarter of 2019. Also, analysts expect the company to report an adjusted EPS of -$0.45 in the first quarter. Currently, analysts expect a 30.9% and 34.6% rise in the company’s 2020 and 2021 revenues, respectively. Analysts also expect an adjusted EPS of -$1.60 and -$1.10 in 2020 and 2021, respectively.

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Can Roku stock revive in the near term?

Notably, Roku stock has corrected by 7.2% this year due to COVID-19. However, the shares have been gaining momentum since last month. Roku stock gained over 38% in April after witnessing a decline of 23% and 6% in March and February, respectively.

The company delivered a strong performance in the fourth quarter and in fiscal 2019. Roku reported better-than-expected revenues of $1.13 billion in 2019, which beat analysts’ estimates of $1.11 billion. The company’s monetized video ad impressions more than doubled in 2019. In the fourth-quarter shareholder letter, the company said that “all top 10 technology and telecom advertisers, as well as all top 10 consumer packaged goods companies, spent with Roku.” The streaming hours increased by 16.3 billion hours YoY to 40.3 billion. Meanwhile, the acquisition of ad tech company Dataxu in October 2019 also drove the revenues in the fourth quarter. The acquisition should drive Roku’s ad-driven business. Dataxu helps marketers buy video ad campaigns. Although the coronavirus might hinder Roku’s ad revenues in the near term, the company should recover in the long term.

Roku investors are still concerned about growing competition in the streaming device market. The company competes with streaming TV devices like Apple TV, Amazon’s (NASDAQ:AMZN) Fire TV Stick, and Alphabet’s (NASDAQ:GOOGL) Google Chromecast. Meanwhile, Roku subscribers might remain active after the crisis. The company’s service provides access to free and paid content.

Analysts’ recommendations and technical details

Among the 21 analysts covering Roku stock, 14 recommend a “buy,” five recommend a “hold,” and two recommend a “sell.” Analysts have an average target price of $128.28 on Roku. The target price implies a return of 0.22% based on the closing price of $124.3 on Monday.

Roku’s 14-day RSI (relative strength index) score is 60.01. The RSI suggests that the stock isn’t “oversold” or “overbought.” Roku stock closed near its middle Bollinger Band level of $113.96, which suggests that it isn’t overbought or oversold.

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