Roku Stock is Down but Not Out

Roku Stock is Down but Not Out

To say streaming platform and hardware provider Roku (NASDAQ: ROKU) stock is having a bad year down (69%) would be an understatement. The Company went from six consecutive quarters of triple-digit growth and record profits to mounting losses and slowing growth in dramatic fashion as its shares peaked at $490. 76 at the end of July 2021 to crater to a low of $62 a year later. The Company has 63.1 million subscribers on its streaming platform utilizing the Roku OS either through a streaming device or smart TV. Roku is one the most popular streaming platforms. Viewers can stream content to their TVs via Roku OS. It’s important to distinguish between streaming services and networks that provide content like Netflix (NASDAQ: NFLX), Hulu, Peacock (NASDAQ: CMCSA), HBO Max (NYSE: WBD), Disney (NYSE: DIS) and platforms that enable streaming the content to viewer like Roku, Amazon Fire (NASDAQ: AMZN), Apple TV (NASDAQ: AAPL), and Google Chromecast (NASDAQ: GOOGL). Roku acknowledges that the slowdown in TV advertisement spend will continue putting pressure on its business in the near future. Inflationary pressures and the macro-economic environment has caused consumers to moderate discretionary spending and advertisers to “significantly curtail” spending in the ad scatter market in the latter half for Q2. The normalization back to pre-COVID levels is continuing to occur like air leaking out of a balloon. While revenues are increasing, losses are increasing. They missed their Q2 2022 EPS by (-$0. 14) as well as revenues targets by (-$40 million) prompting them to withdraw their prior full-year 2022 revenue growth estimate of 35%. Needless to say, that sent shares crumbling after earnings only to regain its losses on a rebound but return back to those levels with the overall market sell-off.



MarketBeat.com – MarketBeat

Advertising Demand Shock

This demand shock from the sudden withdrawal of ad spending was also echoed in earnings misses by Meta Platforms (NASDAQ: META), Snap (NASDAQ: SNAP) and even Alphabet. A survey by Advertiser Perceptions indicates that 47% of advertisers in the U.S. admit to making in-quarter pauses on ad spending in TV streaming, 44% on digital video and 42% on legacy pay TV. Like deja vu, it mirrors the environment at the start of the 2020 pandemic. Roku reached a milestone that exceeded $1 billion in Upfront commitments by all seven major agency holding corporations. Shoppable Ads was launched by the Company. This interactive option allows users to purchase items by pressing “OK”, on their Roku remote, on Shoppable Ads to seamlessly proceed to checkout. Users can also provide shipping and payment information through their Roku accounts.

Reality Bites Roku

On July 28, 2022, Roku reported its fiscal Q2 2022 results for the quarter ending June 2022. The Company reported a loss of $0.0 in earnings-per-share (EPS). 82) versus consensus analyst estimates for a loss of (-$0. 68), a (-$0. 14) miss. Revenues grew 18.4% YoY to $764 million, missing analyst estimates for $804. 64 million. The platform revenues increased 26% YoY to $673 million. Player revenues fell (-19%) YoY to $91.2 million. Active accounts grew to 63.1 million, up 1.8 million YoY. Average revenue per user (ARPU) rose 21% YoY to $44.10. Gross profits grew 5% YoY to $355 million. Streaming hours fell 0.2 billion hours from prior quarter to 20.7 billion hours.

It Doesn’t Get Better

The Company lowered its guidance for Q3 2022 revenues to come in around $700 million versus $902. 66 consensus analyst estimates. Total gross profits are expected around $325 million, and adjusted EBITDA of (-$75 million).

Roku Stock is Down but Not Out

ROKU Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provide a precision view of the landscape for ROKU stock. The weekly rifle peaked near the $117. 39 Fibonacci (fib) level before plunging on the failed weekly stochastic low band coil attempt. The weekly 5-period moving average (MA) resistance is slowing its descent at $99. 20 followed by the weekly 15-period MA at $119 as the weekly stochastic attempts another cross up at the 10-band. The higher cross up this time sets up a potential weekly divergence bottom if it can bounce through market structure low (MSL) buy trigger level on a breakout through $110.56. The weekly 200-period MA is flat at $177.69. The weekly upper Bollinger Band (BB) sits at $251.85. The daily rifle chart downtrend is stalled as the daily 5-period MA flattens at $87. 14 followed by the flattening 15-period MA at $94.30. The daily lower BBs sit at $71. 71 with upper daily BBs at $122.68. The daily stochastic is attempting to coil off the 20-band. Prudent investors can watch for opportunistic pullback levels at the $86. 39, $83. 54 fib, $77. 15 fib, $71. 71 fib, $67. 22, $61. 12, $58. 22 fib, $53. 90, and the $46. 39 fib level. Upside trajectories range from the $117. 39 fib level up towards the $163. 06 fib level.

ROKU Takeover Speculation (Again)

It seems every few months a new takeover rumor emerges for Roku. Rumours circulated that Netflix was looking to acquire Roku in June. Recent shares surged on speculation of a potential buyout. This was based on a 8-K filing amending severance and other benefits in the event that Netflix’s control changes. This is somewhat standard language, but speculators took it as a sign of an impending buyout since co-founder Anthony Wood still retains 59% of the voting power held through Class B shares.

ROKU The Silver Lining?

The pullback in digital ad spending is affecting all the streaming services and social networks. Investors will soon magnify achievements that distinguish themselves as better performers if everyone is affected. Roku is still showing growth on its platform business which is 80% of the business while it’s legacy hardware player business continues to shrink. The stock will not be completely wiped out as long as the platform business, which includes smart TV licensing, ad network and the Roku Channel, continues to grow. The Roku Channel was once again a top five channel on its platform in America. The cutting of the cord trend is continuing and will continue to drive more people to streaming channels and away legacy pay TV. Roku has teamed up with NBCUniversal in order to provide local news. Roku shares will recover if there is any improvement in ad spending from any streaming service, platform or social network. If CEO Wood is available, there is always the possibility of an acquisition.

Read More