Roku has seen a dramatic drop in its share price after its earnings call yesterday, but is it too soon to pull the plug on the platform?
Feb. 18, 2022
Roku (NASDAQ: ROKU) stock slumped by 10% to its lowest price since June 2020 yesterday following its latest earnings call. As if that wasn’t enough of a slide for the streaming platform, its stock is also currently down a further 25% in pre-market trading today.
Let’s examine exactly why Roku is seeing such a massive sell-off.
Roku’s quarterly results
Roku posted a relatively solid earnings beat, announcing adjusted earnings per share (EPS) of $0.17 against an expected $0.09. However, things took a turn when it came to quarterly revenue. Despite growing revenue by 33% year-over-year, a figure of $865.3 million failed to meet analyst predictions of $894 million.
Growth has now slowed for the second consecutive quarter, with previous rates of 51% and 81% respectively outpacing current performance. Similarly, active account growth also slowed significantly from 39% to 17% for the year. Roku blamed this slow-down on global supply chain issues which have impacted the U.S. TV market. This marks the slowest pace of user growth for any quarter in the last four years.
Roku’s 2022 outlook
Roku also failed to impress with its outlook for the coming quarter. Expected revenue of $720 million comes in well below the $748.5 million expected by analysts. The company also outlined that current supply chain headwinds are unlikely to subside in the near future, with television unit sales expected to remain below pre-pandemic levels.
Should I buy Roku stock?
Roku is undoubtedly facing issues that are causing a marked slowdown in growth. However, it must be noted that growth is still occurring. As the world reopens there was always going to be a move away from practices that were more popular when we were all locked down. That bounce will also cease and we’ll see a regression to normality, where Roku was a rapidly growing firm.
Roku’s ad-supported streaming model has huge revenue potential. There’s a clear desire for it amongst consumers, with a Deloitte report from 2020 showing that 65% of people would prefer cheaper streaming options at the cost of having some advertisements included. Roku can offer targeted advertising to companies in a way that’s become increasingly hard to find.
Roku remains both volatile and relatively risky as far as investments go. However, it still offers a huge potential for growth once it can navigate the current headwinds facing a whole host of companies. It has a fantastic revenue model, is expanding rapidly internationally, and is currently quite favorably priced following large-scale selloffs. It might not be a stock for the more risk-averse investor, but it could offer tremendous growth potential over the next decade if it plays its cards right.