Roku Doubles In Three Days After First Earnings Report

Shares of TV streaming company Roku Inc ROKU are on a run after the release of third-quarter results. The stock has more than doubled over three sessions.

Roku's Fundamentals

Roku said in its S-1 IPO filing that it's the No. 1 TV streaming platform in the U.S. based on the total hours streamed, citing data from a study it commissioned. Roku gets the bulk of its revenues from sales of its streaming players and Roku TVs. Additionally, it derives platform revenues from advertisers and subscription revenue share on its platforms.
The company is operating in a highly competitive industry, locking horns with:

• Large technology companies such as Apple Inc. AAPL, Amazon.com, Inc. AMZN and Alphabet Inc GOOGLGOOG, which offer TV streaming products such as Apple TV, Firestick and Chromecast.

• TV brands such as SAMSUNG ELECTRONIC SSNLF and LG ELECTRONICS INC LGEAF.

• Service operators such as Comcast Corporation CMCSA and Altice USA Inc ATUS-owned Cablevision.

Roku's high-margin Platform business has huge monetization potential, which explains the Street's obsession with this newbie.

Strong Debut

Roku's shares soared 68 percent on its IPO, closing at $23.50 on Sep. 28, the day of the listing. This compares to a $14 offer price. The stock traded in the $15.75 to $23.50 range during its first session. 

After advancing further on Sep. 29, reaching a high of $29.80 in the process, the stock cooled off in subsequent sessions, hitting a low of $18.35 Oct. 25. The stock then moved in a tight range of $18.56-$19.95 ahead of the earnings release.

See also: Mike Khouw's Bullish Roku Trade

Q3 Results Rekindle Momentum

Momentum returned with the release of Q3 results Nov. 8. Roku's revenues for the three-month period ending Sept. 30 jumped over 40 percent year-over-year to $124.78 million.

Player revenues accounted for roughly 54 percent of the total revenues, while Platform revenues accounted for the remaining 46 percent. The platform revenues consisted of ad sales, software licensing and branded channel buttons on Roku remotes.

Platform revenues are associated with higher margins, generating $44.57 million, or about 89 percent of the company's total gross profit of $49.90 million for the third quarter.

Among key performance metrics, hours streamed rose 58 percent to 3.78 billion hours; active accounts climbed 48 percent to 16.73 million; and the average revenue per user, or ARPU, increased 37 percent to $12.68.

The stock galloped 55 percent on Nov. 9 in reaction to Roku's earnings, settling at $29.19, a gain of 55 percent. After adding another 14 percent, the stock closed Nov. 10 at $33.25.

Roku opened the session Monday, Nov. 13 at $34.88, with a positive gap. Having hit the day's low of $34.86 in early trading, the stock advanced modestly until the mid-session.

Roku experienced a steep ascent in the mid-session and rose to a high of $47.49. The stock has been trending sideways since then.

The Sell-Side Reaction

The post-earnings rally contradicted the view of Tigress Financial's Ivan Feinseth, who said the rally may not last long.

The analyst's skepticism stemmed from concerns about the amount of competition Roku faces. 

Morgan Stanley's Benjamin Swinburne applauded the results, stating that secular tailwinds drove user growth and monetization, helped by strong smart TV and Roku Player sales and strong ad growth.

Morgan Stanley bumped up its price target on Roku shares from $22 to $25 after the company's earnings report, while maintaining an Equal-weight rating. 

The average analysts' price target for the stock is $27, according to the Yahoo database.

Joel Elconin contributed to this report. 

Related Link:

Roku Impresses With First Publicly Reported Quarter