Last Minute Thought: Buy or Sell Roku Stock Before Q4:18 Earnings?

Like most growth stocks, Roku (ROKU) is a “story” stock. The question ahead of Roku’s fourth-quarter earnings report this afternoon is whether the story is good enough going forward.

While it doesn’t paint a full picture, the streaming device maker has already provided investors with a sneak peek at selected metrics from the holiday quarter, and by all accounts, it appears to have been a blowout. Specifically, on January 7, Roku reported that its Q4:18 streaming hours were 7.3 million, beating consensus estimates of 6.6 billion. Furthermore, active accounts in the latest quarter rose about 40% from a year ago to 27 million. Looking ahead, Roku will provide 2019 guidance when it reports full fourth-quarter results in just a few minutes, and that’s where all eyes are now.

Ahead of the print, Wedbush analyst Michael Pachter adjusted his FY:19 estimates for revenue to $996 million from $999 million, for adjusted EBITDA to $72 million from $52 million, and for EPS to $(0.02) from $0.20.

“Our estimate revisions reflect slightly lower ARPU on higher active accounts, with higher operating expenses and stockbased comp to support the rapid hiring we expect to continue throughout the year,” Pachter noted. “We estimate that ARPU from The Roku Channel (“TRC”) sub-segment is the fastest growing contributor to overall revenue growth and ARPU growth. As Active Users on the Roku Platform seek out free content, they are steered toward The Roku Channel. Additionally, Roku began offering Premium Subscriptions through TRC in late January, which will likely drive adoption of Roku’s free ad-based content in addition to revenue share on premium channel subscription fees. We expect TRC to be Roku’s highest ARPU contributor by the end of 2019, and expect continued growth as Roku expands internationally. We think Roku’s international expansion potential is significant, and given the favorable contribution to ARPU, more rapid international expansion would represent upside to our current estimates.”

All in all, Pachter reiterates an Outperform rating on Roku stock, with a price target of $65, which represents a potential upside of 26% from where the stock is currently trading. (To watch Pachter’s track record, click here)

ROKU has a cautiously optimistic Moderate Buy consensus rating from the Street. This breaks down into 5 ‘buy’ vs. 3 ‘hold’ ratings in the last three months. However, we can also see from TipRanks that the average analyst price target is $47.71 – nearly 7% downside from the current share price. (See ROKU’s price targets and analyst ratings on TipRanks)


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