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You would be tempted to think that there was something terribly wrong Roku (NASDAQ: ROKU) if you only looked at the price of the shares. The streaming and pioneering platform is down 14% since the beginning of the year, which does not compare favorably to the 1% gain managed by the S & P 500.
Taken in a vacuum, the decline in stock prices does not seem to bode well for Roku. But you may be surprised to learn that just six weeks ago, Roku reached unprecedented highs, up nearly 48% since the beginning of the year, while the market in general had only gained a few points. What caused the 62% drop in recent company heights and what should Roku investors expect from here?
Source of the image: Roku.
Solid results, but Wall Street wanted more
Roku's third quarter results are impressive – and they are representative of the growth that the company has achieved so far this year. Roku recorded a turnover of $ 173.4 million, up 39% over the previous year, outpacing both the highest management forecasts and consensus forecasts. analysts. The company also announced a net loss of $ 11.7 million, better than Roku's expected $ 15.5 million loss halfway through its forecast. This translates into a diluted loss of $ 0.09 per share, a significant improvement over the company's $ 8.79 loss in the prior year quarter.
The stock had already suffered a lot in recent market downturns, which were particularly tough for technology stocks. Roku's shares fell an additional 22% after the release of its financial statement. With a seemingly solid earnings ratio, what is the cause of the tumble? Wall Street was less than pleased with Roku's forecast for the next quarter. The company generated a net loss of approximately $ 1 million while analysts were looking for a net profit of $ 7 million.
Better days to come
Although Wall Street may be short-sighted, there are many reasons to believe that Roku has a bright future. While the company was initially known for its streaming Internet devices, advertising on Roku's platform segment became the main breadwinner earlier this year, surpassing sales in its player segment. The high margin platform business figure – with a gross margin above 70% – increased by 74% over the previous year and accounted for 58% of the turnover figure. total business last quarter.
However, even as the company strives to expand its platform business, its digital players continue to dominate an impressive market share. The company has developed an operating system specifically designed for streaming television. As a result, 1 in 4 smart TVs sold in the United States is a Roku TV.
Users continue to flock to the service: active accounts increased to 23.8 million, up 40% from the previous year. Streaming hours also increased to 6.2 billion, up 63% from the previous year's quarter. Subscribers are also spending more as average revenue per user (ARPU) has increased to $ 17.34, up 37% from the previous year.
Source of the image: Getty Images.
Major societal trends
As more and more people abandon cable and adopt streaming, more and more advertising will switch from traditional TV to streaming. This places Roku in a unique position to capitalize on the trend, as its platform is open to all, and it is not limited to some suppliers.
In addition, the recent decision to offer the Roku channel to all web-enabled devices will significantly extend the company's reach to a wider audience, which will allow Roku to collect more valuable data. This will provide the company with much better information when making decisions about content providers and licenses.
Everything is added
While Roku's shares have been falling since the beginning of the year, investors should not confuse a declining price with a business in decline. The company continues to build on its strengths and position itself in the long term. In the future, shareholders will likely look at the recent price cut and see it as nothing more than a speed bump.
Danny Vena owns shares of Roku, Inc. Motley Fool does not own any of the shares mentioned. Motley Fool has a disclosure policy.
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