Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

This Analyst Sees About 13% Downside for Roku Stock Ahead of Earnings

Roku (ROKU) is slated to announce earnings Wednesday, as investors are hoping that strong performance pushes the stock price even higher than current levels.

The company posted very strong results in its holiday quarter, which has served as a major catalyst for its stock rising over 100% since the beginning of the year.

But investors have pulled back slightly causing share prices to drop about 14% since its 2019-high reached in March. Wedbush analyst Michael Pachter doesn’t see this pullback as a short-term fad, as he reiterates a Neutral rating on ROKU stock with $55 price target, which implies nearly 13% downside. (To watch Pachter’s track record, click here)

Ahead of the print, Pachter expects Q1 revenue of $195 million (consensus $192 million, guidance $185 – 190 million), with adjusted EBITDA of $(4) million (consensus $(9) million, guidance of $(12) – (8) million), and non-GAAP EPS of $(0.22) (consensus of $(0.25)). Overall, and though the analyst is not bullish on Roku’s stock, he expects the company do perform better than both Wall Street consensus and the company’s own guidance.

Pachter expects the main driver of growth to come from Platform revenue, which the analyst estimates will grow 70% since Q1 of last year. Pachter says Platform will be “driven by active account growth of 38% year-over-year and ARPU growth of 26% year-over-year, largely due to the expansion of [The Roku Channel].”  

With the market becoming more crowded, Pachter views “Apple+ and Disney+, along with other new content apps, as a mixed bag for Roku,” as, while “Roku will earn revenue share for users that sign up on its platform….this may take eyes and time away from TRC (The Roku Channel), putting advertising revenue growth at risk.”

Pachter says TRC is “Roku’s fastest growing contributor to overall revenue growth and ARPU,” and believes the channel has “significant” international potential, though the company “must spend handsomely to expand.” Another headwind is the “collaboration” between Amazon and Google, which brings YouTube to Fire TV and Prime Video to Chromecast, with Pachter saying it adds “a layer of complexity.” Prior to this, competition between the two “had given Roku a competitive advantage as it had both apps on its platform.”

All in all, though its stock is up nearly double in the first four months of the year, there isn’t overwhelming support for Roku from the analyst community. Wall Street almost evenly split between the bulls and those choosing to play it safe. Based on 12 analysts polled in the last 3 months, 5 rate a Buy on ROKU stock, 5 maintain a Hold, while 2 issue a Sell. The 12-month average price target stands at $$64.18, suggesting the stock is fairly valued. (See ROKU’s price targets and analyst ratings on TipRanks)


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