Shares of Roku ROKU opened higher before slipping into the red on Wednesday morning, just hours before the video streaming hardware company is scheduled to release its fourth-quarter earnings report. This popular young stock skyrocketed after its first earnings announcement as a publicly-traded company just a few months ago, so investors can expect Roku to garner significant attention this afternoon.
In its first-ever public report, Roku reported a non-GAAP, pro forma loss of 10 cents per share, which was an improvement from the 17 cent loss the company said it witnessed in the prior-year period. The company also posted revenues of $124.8 million, up nearly 40% from the $89.1 million witnessed last year.
Heading into its report on Wednesday, our Zacks Consensus Estimates are calling for Roku to report an adjusted loss of 11 cents per share and total revenues of $183.2 million for the fourth quarter. That quarter-over-quarter sales growth is obviously lifted by holiday sales, but Roku has nonetheless emerged as an exciting growth pick.
Roku is currently sporting an "A" grade for Growth and an "F" grade for Value in our Style Scores system. That type of divergence is one that we often see in higher-risk growth stocks, especially young tech companies looking to capitalize on budding trends. That "F" might appear to be a negative, but it might actually attract explosive growth-minded investors that are not focused on current earnings.
And for those interested in the streaming industry, Roku is hardly a new name. The company's streaming boxes are legitimate contenders to similar products from the likes of Google GOOGL and Apple AAPL , meaning that investors might have the rare opportunity to jump on a growth stock that is also a dominant force in its industry already.
Another thing to consider is that Roku is currently trading more than 10% below the all-time high that it reached in late 2017. This might alleviate a bit of the downside potential if Roku's earnings report disappoints, and it could also give the stock some room to run higher if it exceeds expectations.
Still, investors might be concerned about the company's spending in the quarter. Management has been trying to expand its advertising revenues, and while Roku can probably parlay its hardware platform into advertising revenues effectively, this ad expansion may still be coming at a cost.
Meanwhile, we know that Roku disclosed the acquisition of Dynastrom, a Danish firm focused multi-room audio software, in November. Reports at the time indicated that Dynastrom employees had been working at Roku since at least September, so it is unclear exactly when the undisclosed cost of the acquisition occurred, but this could cut a chunk out of the company's bottom line.
Dynastrom could also be costly endeavor if the firm is actually working on a secret smart speaker system, as many have speculated. The company develops Sonos-like sound functions over WiFi, and it seems logical that Roku would be interested in expanding its hardware offerings into the audio business.
Whatever the case may be, Roku's soaring valuation means that it will either need to deliver impressive growth and a favorable outlook in today's report. That means this is likely a high-risk earnings play, so investors should obviously proceed with caution-but those with the right nerves might find this interesting.
Want more market analysis from this author? Make sure to follow @ Ryan_McQueeneyon Twitter!
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.