Is now a good time to buy Roku (ROKU) stock? This is the main question investors will want an answer to when the company reports fourth quarter fiscal 2021 earnings results after the closing bell Thursday. Shares of the video streaming specialist have been clobbered over the past several weeks, losing some almost 60% of their value in six months, including a drop of 10% in the past thirty days, trailing the S&P 500 index in both spans.
With shares down 27% year to date, Roku screams strong value. In partnership with Nielsen Holdings (NLSN), Roku recently launched Digital Ad Ratings audience guarantees on its OneView ad platform which will allow Roku to sell guaranteed demographic impressions to its ad partners. According to Roku, “OneView users can now choose a specific age and gender demographic, like adults ages 18 to 49, and pay only for the ad impressions that reach their target audience.”
Already benefiting from a rising trend in advertising dollars that are shifting from linear television to streaming, this means Roku can now guarantee that its ad customers can target only the demographic that meets their criteria, allowing the company to raise ad prices if it chooses. Given these factors, Roku stock appears more appealing on this recent drop. On Thursday the company must do its part to demonstrate that value.
In the three months that ended December, the Los Gatos, Calif.-based company is expected to earn 7 cents per share on revenue of $896.54 million. This compares to the year-ago quarter when earnings came to 49 cents per share on revenue of $649.89 million. For the full year, earnings are expected to be $1.60 per share, reversing a loss of 14 cents a year ago, while full-year revenue of $2.79 billion would rise 57% year over year.
The market has begun to question whether the company can maintain its historical growth rate. The textbook definition of a stay-at-home stock, the digital media device manufacturer has benefited from video streaming industry which has grown at a breakneck pace over the past few years. The company has enjoyed both rapid revenue and account growth, driven not only by pandemic-induced lockdown periods, but also from the arrival of new streaming services from the likes of Apple’s (AAPL) Apple TV+, Disney’s (DIS) Disney+ platform and AT&T’s (T) HBO Max, among others.
What’s more, driven by a continued shift away from traditional media, the streaming industry has spawned record number of new user sign-ups. Roku is still capitalizing strongly from the cord-cutting phenomenon where consumers are canceling their bloated cable and satellite TV subscriptions in favor of streaming applications. Aside from Roku’s dominant market share in streaming advertising with its Roku channel, the company also makes money on subscriptions. The company has also begun to target new revenue streams to penetrate international markets.
But the growth rate has decelerated in recent quarters which has pressured the stock price. In the third quarter although Roku beat on the bottom line, it missed on revenue and issued downbeat guidance. Q3 revenues rose 50% to $680 million, driven by 82% rise in platform revenue to $582.5 million. However, because of supply chain disruptions, Player revenues fell 26% missing estimates by a significant margin.
It wasn’t all bad news, however. Q3 active accounts grew by 1.3 million to 56.4 million, while streaming hours rose 21%, to 18 billion. Gross profit was also strong, rising 69% to $364 million and driving profits higher by five-fold to $68.8 million.On Thursday, the company can affirm its streaming dominance by growing these metrics.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
Read Richard's Bio