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Should You Sell Roku Stock Due to Sour Outlook?

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On Thursday, Roku (NASDAQ:ROKU) stock fell 10% in after-hours trading. The company reported its first-quarter earnings after the market closed. The quarter ended on March 31. Roku shares fell after the company reported higher advertising cancellations due to the coronavirus pandemic.

In the first-quarter earnings release, Roku said, “While our advertising business has seen higher than normal cancellations as overall advertising budgets have declined, this has been partially offset by ad-spend that has moved to Roku from traditional TV budgets. Despite the likelihood that total U.S. advertising expenditures will decline in 2020, we believe Roku is relatively well positioned based on the effectiveness of our ad products and the trend towards streaming.” The report also said, “As a result, we anticipate that our ad business will deliver substantial revenue growth on a year-over-year basis, albeit at a slower pace and lower gross profit than we originally expected for the year.”

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First-quarter earnings results

Roku reported an EPS of -$0.45 in the first quarter compared to -$0.09 in the first quarter of 2019. However, Wall Street analysts expected the company to report an EPS of -$0.46 in the first quarter.

In the first quarter, Roku reported revenue of $320.77 million, which increased by 55.2% from $206.66 million in the first quarter of 2019. The company beat Wall Street analysts’ consensus revenue expectation of $306.72 million for the first quarter.

While total sales rose 55.2% YoY (year-over-year), Roku’s Platform business component saw growth of 73.4%. The Platform business raked in sales of $232.6 million. Now, the business accounts for 72.5% of the company’s total sales.

Roku added 2.9 million active accounts in the first quarter, which brought the total number of active accounts to 39.8 million at the end of March 31. The streaming hours rose by 1.5 billion hours sequentially to 13.2 billion. Meanwhile, the average revenue per user rose 28% YoY at $24.35. The gross profit rose by 40% YoY to $141.1 million in the first quarter.

Wall Street analysts expect Roku to report sales of $317.06 million in the second quarter. The figure would mark a rise of 26.8% YoY compared to $250.10 million in the second quarter of 2019. Also, analysts expect the company to report an EPS of -$0.44 in the second quarter. Currently, analysts expect a 32.2% and 34.6% rise in the company’s 2020 and 2021 sales, respectively. Analysts also expect an EPS of -$1.61 and -$1.20 in 2020 and 2021, respectively.

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What are analysts saying about Roku stock?

Roku is covered by 21 Wall Street analysts. Among the analysts, 14 recommend a “buy,” five recommend a “hold,” and two recommend a “sell.” Analysts’ mean target price on the stock is $129.17, which implies a 6% loss from the current level of $137.50. The consensus target price for the stock has fallen from $139.72 in April—a fall of 7.6%.

Many analysts changed their target price for Roku stock after its first-quarter earnings release.

  • RBC increased its target price from $139 to $141.
  • Susquehanna decreased its target price from $170 to $145.
  • Wedbush increased its target price from $86 to $136.
  • Rosenblatt Securities increased its target price from $110 to $145.
  • Loop Capital increased its target price from $70 to $90.

Stock returns

Roku stock rose 7.8% on Thursday and ended the day at $137.50. At this closing price, Roku’s market cap is $16.6 billion. The stock is trading 22.1% below its 52-week high of $176.55 and 136.2% above its 52-week low of $58.22.

Based on Roku’s closing price on Thursday, the stock was trading 14.5% above its 20-day moving average of $120.13. Roku is trading 34.5% above its 50-day moving average of $102.20 and 17.5% above its 100-day moving average of $117.01. The stock’s 14-day relative strength index score of 68 suggests that the stock is overbought.

Roku’s upper, middle, and lower Bollinger Bands are $141.60, $120.13, and $98.66, respectively. The stock closed near its upper Bollinger Band level, which suggests that it’s overbought.

On Thursday, the Dow Jones Industrial Average rose by 211 points or 0.9%. Also, the S&P 500 and the Nasdaq Composite gained by 1.2% and 1.4%, respectively.

Read Can Roku Stock Continue to Rise after Its Q1 Earnings? and Is Roku Stock a Good Option for Investors? to learn more.

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