Case Study: Roku (ROKU) stock according to high performing analysts
Key Points
Performance
Roku (ROKU) shares rose by 32.2% this week, pushing their year-to-date gains up to 76.4%. This compares favorably to the S&P 500 and the Nasdaq Composite index which are up by 6.67% and 13.48%, respectively, during 2023 thus far.
Event & Impact
Roku posted fourth quarter results this week, beating Wall Street estimates on both the top and bottom lines. During Q4, ROKU’s revenue totaled $867.06 million, beating Wall Street’s consensus estimate by $64.2 million, representing 0.2% year-over-year growth. Roku’s Q4 GAAP earnings-per-share came in at -$1.70, missing estimates by $0.03/share.
Noteworthy News:
Roku continued to grow its subscriber base during Q4, despite macro headwinds persisting in the digital advertising space. The company believes that it will generate positive results on the bottom-line by 2024.
Nobias Insights
51% of recent articles published by credible authors focused on Roku shares offer a “neutral” bias. 1 out of the four credible Wall Street analysts who cover ROKU believes shares are likely to rise in value. However, the average price target being applied to ROKU by these credible analysts is $99.00, which implies upside potential of approximately 38.3% relative to the stock’s current share price of $71.56.
Bullish Take Luke Lango, a Nobias 4-star rated author, said, “Year-to-date, shares are already up about 75%, marking the stock’s sharpest rally of all time. Roku stock joins a long list of rocketing tech stocks that have returned from the dead in 2023. And in less than two months, they’re scoring a decade’s worth of returns for their investors.”
Bearish Take Shawn Johnson, a Nobias 4-star rated author, said, “The operating loss represents a 1,270 percent decline from last year, when Roku reported operating income of $21.4 million during the holiday season.”
ROKU Feb 2023
Roku shares have been on quite a run throughout 2023 thus far, rising by 76.43% on a year-to-date basis. The stock was up 32.2% this week alone on the heels of its fourth quarter earnings report. What makes this story so interesting is that after its 76% year-to-date rally, ROKU shares are still down by 50.55% during the trailing 12 months. This speaks to the depth of ROKU’s 2022 sell-off and begs the question, can the stock’s amazing run continue?
Bullish Nobias Credible Analysts Opinions:
Luke Lango, a Nobias 4-star rated author, published an article this week at Business Insider which focused on the 2023 rally and the macro sentiment which has helped to fuel Roku’s recent rally. Lango said, “Did you know that more than 500 stocks have already risen more than 50% in 2023 alone? And more than 160 have already doubled!” “Some folks are calling this a “dead-cat bounce” for high-growth tech stocks,” he said. But, he quickly pivoted, stating, “It’s not. It’s actually the opposite – the start of a big new bull market for high-growth tech stocks.”
Lango noted, “All the factors that knocked down stocks in 2022 are reversing course in 2023.” He continued, “Rising inflation has become falling inflation. An increasingly hawkish Fed has become an increasingly dovish Fed. A deteriorating economic outlook has become a re-stabilizing economic outlook. Excessive valuations have become discounted valuations. “
“In short,” Lango wrote, “the headwinds of 2022 have become tailwinds in 2023. As this reversal progresses, the stock market will make an epic comeback.” Then, he pivoted away from the macro and towards the micro, highlighting Roku’s 2023 rally, stating, “Year-to-date, shares are already up about 75%, marking the stock’s sharpest rally of all time. Roku stock joins a long list of rocketing tech stocks that have returned from the dead in 2023. And in less than two months, they’re scoring a decade’s worth of returns for their investors.”
And, using history as a guide, Lango believes that Roku’s rally is likely to continue. He said, “Since 1950, the S&P 500 has rallied 6%-plus in January on 10 separate occasions.” And then continued, “In years when the red-hot January performance followed a bad prior year performance – as is the case in 2023 – average returns that year were almost 26%.” In other words, Lango believes that the macro rally has plenty of room to run.
Patrick Seitz, a Nobias 4-star rated author, broke down Roku’s Q4 results in an article that he published at Investors.com this week. Regarding the company’s subscriber base, Seitz wrote, “The San Jose, Calif.-based company late Wednesday said it added 4.6 million new active accounts in the holiday quarter, bringing its total to 70 million.” He continued, “Analysts had expected 3.04 million new users in the period.”
Regarding the company’s fourth quarter fundamentals, Seitz said, “Roku lost $1.70 a share on sales of $867 million in the fourth quarter amid a difficult advertising climate.” He compared those results to the analyst consensus, stating, “Analysts had predicted Roku would lose $1.72 a share on sales of $803 million. In the year-earlier period, Roku earned 17 cents a share on sales of $865 million.”
Looking ahead at the forward guidance that Roku’s management provided during the Q4 report, Seitz said, “For the current quarter, Roku forecast total revenue of $700 million, down 5% from the same period last year. But that topped Wall Street's goal of $692 million for the first quarter.” Roku published a Letter to Shareholders alongside its Q4 results and in that press release, the company focused on its size and scale within the streaming market.
Roku said, “Active Account net adds were 4.6 million in Q4 and 9.9 million in 2022, ending the year with 70.0 million active accounts globally. Full year net adds were above both 2019 and 2021 levels and driven primarily by the Roku TV program in the U.S. and international markets. In the U.S., our active accounts are approaching half of broadband households, and we believe this share will continue to grow.”
The company concluded that letter stating, “Looking ahead, although macro uncertainty seems likely to persist in 2023, our unmatched scale and engagement, along with our competitive advantages, give us conviction in our ability to navigate and execute in challenging times. “
Bearish Nobias Credible Analysts Opinions:
Shawn Johnson, a Nobias 4-star rated author, published an article highlighting Roku’s Q4 results this week as well; however, in his report, he focused his attention on the company’s operating losses. Johnson said, “The operating loss represents a 1,270 percent decline from last year, when Roku reported operating income of $21.4 million during the holiday season.” Yet, he noted, “Despite mounting losses, Roku stock rose nearly 10 percent in after-hours trading on the company’s better-than-expected revenue performance, which analysts had expected to land closer to $803 million.”
Maintaining that bottom-line focus, Johnson wrote, “For the current first quarter, Roku said it expects the net loss to remain the same but shrink to $205 million.” Lastly, Johnson touched upon Roku’s operating results, writing, “Total streaming hours for the quarter increased to 23.9 billion hours, an increase of 23 percent year-over-year.” He also noted, “Roku’s platform business continued to drive the majority of revenue, while the device business — hit by slower holiday sales — saw an 18 percent decline over the previous year.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
In the company’s Q4 letter to shareholders, Roku highlighted its plans to generate positive results on the bottom-line, stating: “Importantly, we plan to continue to improve our operating expense profile to better manage through the challenging macro environment, while building on our platform's monetization and engagement tools and partnerships. Through a combination of operating expense control and revenue growth, we are committed to a path that delivers positive adjusted EBITDA for full year 2024.”
Overall bias of Nobias Credible Analysts and Bloggers:
Overall, the credible authors that the Nobias algorithm tracks remain divided on Roku’s prospects, with 51% of recent articles published on ROKU shares expressing a “Neutral” opinion. The credible Wall Street analysts that Nobias tracks are divided on the shares as well. 50% of credible analysts who follow ROKU shares offer “Bearish” opinions. Just 1 of the 4 credible analysts who cover the stock believe that shares are likely to increase in value.
Yet, the strength of that bullish report pushes the average credible analyst price target for Roku shares up to $99.00/share, implying upside potential of approximately 38.3% relative to the stock’s current share price of $71.56.
Disclosure: Nicholas Ward has no ROKU position Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.