Roku (ROKU) Stock Trades Down, Here Is Why
What Happened:
Shares of streaming TV platform Roku (NASDAQ: ROKU) fell 22.3% in the morning session after the company reported fourth-quarter results and provided slightly underwhelming outlook for the coming quarters. The company lacked specificity that the market craves when discussing its full-year 2024 EBITDA forecast (it stated that EBITDA would be "positive" rather than sharing a number - Wall Street was expecting $100 million of EBITDA for 2024). Management cited challenging macroeconomic conditions and an uneven ad market recovery, and they anticipate seasonal revenue declines in line with Q1 2023, alongside tough year-over-year growth rate comparisons in streaming services distribution and a challenging media and entertainment landscape. Additionally, the company has averaged 8% upside to Wall Street's revenue estimates since Q3 2022, so Roku's more modest beat this quarter may be causing investors to level set with regards to expectations.
On a more positive note, Roku beat analysts' revenue expectations as it grew its user base and outperformed in its Platform and Devices segments. Its revenue guidance for next quarter also topped analysts' expectations. Overall, this quarter's results seemed mixed, but the market was likely expecting more.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Roku? Access our full analysis report here, it's free.
What is the market telling us:
Roku's shares are very volatile and over the last year have had 32 moves greater than 5%. But moves this big are very rare even for Roku and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 4 months ago, when the stock gained 15.6% on the news that the company reported third quarter results that exceeded analysts' revenue expectations, driven in part by better active account growth. While revenue guidance for Q4 was in line, adjusted EBITDA guidance was well ahead, and that was probably the most exciting aspect of this earnings report. Overall, this quarter's results seemed fairly positive, and shareholders should feel optimistic.
Roku is down 17.9% since the beginning of the year, and at $73.11 per share it is trading 31.6% below its 52-week high of $106.87 from November 2023. Investors who bought $1,000 worth of Roku's shares 5 years ago would now be looking at an investment worth $1,373.
Today’s young investors likely haven’t read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.
