Roku shares punished on weak guidance: buy the dip?
- Roku reports a better-than-expected Q3 but disappoints on guidance.
- D.A. Davidson analyst Tom Forte reacts to the earnings report.
- Roku shares tanked about 20% on the news in after-hours trading.
Roku Inc (NASDAQ: ROKU) crashed to its lowest stock price since early 2019 in extended trading on Wednesday as investors responded to its disappointing guidance for the holiday quarter.
Analyst reacts to Roku’s earnings report
For Q4, Roku forecasts $800 million in revenue on $135 million of adjusted EBITDA loss. In comparisons, analysts had called for $899 million and only $48 million, respectively.
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The streaming company, much like Snap or Meta Platforms, attributed its weak outlook to the advertising slowdown. Speaking with Yahoo Finance, Tom Forte – Senior Research Analyst at D.A. Davidson said:
What we’re seeing is that the weakness in digital advertising is extended to connected TV. But the good news for Roku is that you’re seeing all these linear television ad dollars move online.
He expects the ad space to pick up again in 2023 once there’s more clarity on the state of the economy.
Are Roku shares worth buying?
Despite challenges, though, Forte remains strongly bullish on the Nasdaq-listed firm. He recommends buying Roku shares and sees upside in them to $130. That’s a close to 200% gain from here.
Viewership now is ahead of broadcast TV. It’s ahead of cable television. But the ad spend is still skewed toward linear television. As that moves over time to OTT, it’s a tremendous opportunity for Roku.
Roku has recently started selling smart home products at Walmart, which, as per the analyst, could also serve as a catalyst, no in the near-term, but eventually in a distant future.
Other notable Roku bulls include the billionaire investor Cathie Wood.
Roku Inc Q3 earnings snapshot
- Lost $122.2 million that translates to 88 cents per share
- That compares to the year-ago $68.9 million of net income
- Revenue jumped 12% on a year-over-year basis to $761 million
- Consensus was $1.29 a share loss on $696 million in revenue
- Both platform and player revenues came in better than expected
Roku added 2.3 million active accounts this quarter to end it with 65.4 million in total. Average revenue per user climbed just over 10% year-on-year to $44.25. Experts had forecast $43.40 in ARPU out of 64 million active accounts in total.
Streaming hours totalled 21.9 billion in Q3 versus 20.9 billion expected, as per the letter to shareholders. Also on Wednesday, Roku said its CFO Steve Louden will exit the role next year. He’ll stay with the company through the process of recruiting and training a successor.
Those interested in buying this stock should also consider that it’s lost more than 80% for the year now.