Roku Stock Price Drops Sharply Despite Positive Q4 Print

By: Michael Harris
Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to… read more.
on Feb 15, 2020
Updated: Apr 3, 2020
  • Q4 earnings: negative $0.13 per share vs negative $0.14 per share expected from the market
  • Revenue: $411 million vs $392 expected
  • “They've had an incredible year and it looks like they’re continuing to build on that,” says TD Ameritrade analyst
  • Still, the Roku stock lost more than 6% yesterday on disappointing earnings forecast

Shares of Roku, a major streaming company, lost more than 12% during yesterday’s trading session in New York despite the Q4 earnings that beat market estimates.

Fundamental analysis: Monetized video ad impressions more than doubled

Roku reported better-than-expected fourth-quarter results that beat analyst estimates. The California-based streaming company reported a loss of $0.13 per share, compared to $0.14 expected from the market.

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“While 2019 was a tipping point in commitments to streaming, the full force of change is still to come,” executives wrote in their letter to shareholders.

Revenue came in at $411 million, easily beating analyst estimates of $392 million. Moreover, the revenue for 2019 was reported at $1.13 billion, compared to $1.11 billion expected from the market.

“They’ve had an incredible year and it looks like they’re continuing to build on that. The benefit for them is, as the streaming pie gets larger, it benefits companies like Roku,” said TD Ameritrade’s analyst Shawn Cruz.

The management of the company said during the earnings call that the monetized video ad impressions more than doubled over the year, which provided a significant boost for Roku and its revenue.

Initially, shares of Roku gapped more than 7% to open higher on Friday. However, the disappointing 2020 guidance facilitated an increased selling pressure, which saw the stock ultimately close nearly 13% lower compared to its opening price.

The Roku expects that spending efforts would “continue to weigh on the bottom line”, prompting a disappointing earnings forecast for the future quarters.

“While we agree that the company must invest to support its next leg of growth, we fail to see how it cannot at least reach modest profitability with revenue at or above $1.5 billion,” Wedbush analyst Michael Pachter wrote.

Technical analysis: The big red candle

As seen in the chart below, the bulls couldn’t hold their interest throughout Friday, which resulted in a long bearish candle that can have short-term consequences on the price action. Overall, the stock lost 6.33% on Friday.

Roku stock daily chart (TradingView)

Looking at the big picture, the price action is trading within a wedge. The bearish close on the daily chart forced the price below the 100-DMA and the down-slipping trend line around the $132. The short-term bearishness may continue, with the next target for the bears being $122 and $118.

On the upside, the broken 100-DMA will now act as a resistance. The mid-term resistance is the wedge upper line, currently sitting at $162.

Summary

Shares of Roku went on a roller-coaster ride to close more than 12% lower compared to the stock’s opening price on Friday. Despite the Q4 revenue and earnings that beat analyst estimates, investors weren’t impressed with disappointing earnings forecast for the future.

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