Roku ROKU shares have plummeted roughly 30% since September 17 after Wall Street and investors fled the stock after Comcast CMCSA and Facebook FB made headlines in the streaming TV device market. Despite the selloff, shares of Roku are still up 250% in 2019.
Therefore, it’s time to see if investors should think about buying Roku stock on the dip, or if they should stay away from the streaming TV firm?
Comcast last Wednesday announced that it would give its new streaming TV player device, Xfinity Flex, to its internet user for free. The cable and internet giant had charged users $5 a month to rent the small piece of hardware that allows users to watch streaming services such as Netflix NFLX and HBO T all in one place, similar to Roku and others.
The move is part of Comcast’s growing streaming TV push as more users dump cable. This will also see the company’s NBC Universal unit launch its own streaming TV service, Peacock, in April 2020. Meanwhile, Facebook introduced Portal TV, as part of its in-home smart product push alongside Google GOOGL and others.
As we mentioned at the top, shares of Roku plummeted last week, falling from $150.52 per share on Tuesday, September 17 to $108.05 by Friday. This represented an approximately 28% drop. Roku stock only dipped 0.63% on Monday and now sits roughly 40% off its 52-week highs of $176.55 per share.
Investors can see, based on the chart above, just how volatile the streaming TV company’s stock price has been since going public roughly two years ago. Roku stock has traded as low as $26.30 a share over the past 52 weeks.
Roku stock currently hovers around where it traded before it released its Q2 fiscal 2019 earnings data on August 7. Still, Roku stock has been on an impressive run overall.
Roku’s devices allow customers to watch streaming services such as Hulu, Amazon Prime AMZN, and others all in one place. The Los Gatos, California-based company currently boasts a larger market share than rivals like Apple TV and Amazon Fire TV, according to eMarketer.
On top of its portfolio of small devices, the company’s branded smart TVs have also become widely popular. The company also has its own Roku Channel that allows users to watch free streaming movies and TV shows, which could help it become more attractive as both choices and fees stack up.
The company sells advertising across its Roku Channel and its marketplace, which allow marketers to buy targeted ads and more. Last quarter, total company revenue surged 59% from the year-ago period, with platform revenue up a whopping up 86%.
Various forms of advertising drove Roku’s platform revenue growth. This expansion highlights just how hard consumers are to reach today. “Our direct consumer relationship and data are guiding the creation of new ad formats on our home screen and across the user experience,” Roku wrote in prepares remarks last quarter
“Sponsorships, which enable brands to help streamers discover and try new content, grew significantly faster than the already fast growth of video advertising. These ad formats are unique to Roku, and the consumer reaction is overwhelmingly positive.”
Moving on, our Zacks Consensus Estimates call for the firm’s Q3 revenue to jump roughly 49% to reach $258.07 million. Meanwhile, fiscal 2019’s revenues are projected to climb 46% to $1.08 billion, with 2020 expected to come in 33% higher at $1.44 billion. Investors should be pleased to know that 2019’s full-year revenue projection would see Roku top 2018’s 45% sales expansion.
The bottom end of the income statement paints a far less pretty picture, with Roku projected to post an adjusted full-year loss of -$0.50 per share. This would mark a massive downturn from 2018’s adjusted loss of $0.08 per share. However, the company has crushed our quarterly earnings estimates by an average of 77% over the trailing four periods and anyone interested in Roku should view it as strictly a growth play by for now.
Disney DIS and Apple AAPL are both set to officially launch their new streaming services in November after months of anticipation. And Roku stock is essentially an investment in the broader streaming TV business, as it is one of the only pure-plays in the industry aside from NFLX.
Obviously, some on Wall Street were spooked by the Comcast and Facebook news. But Roku has already expanded in a market full of competing offerings from the biggest companies in the world, such as Apple, Amazon, and Google. Looking ahead, Roku management hopes to expand its international reach as the global streaming market continues to grow.
Roku is currently a Zacks Rank #3 (Hold) that has yet to see its earnings revision picture move following last week’s announcements. Therefore, some investors might want to consider taking a bite out of Roku stock down 40% off its highs, while others might decide to wait for signs of a comeback.
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