Roku Stock Down 22% Despite 'Almost Perfect Quarter': Analyst Expects Stock To Be 'Range-Bound Until Platform Growth Returns'

Roku Inc ROKU stock was trading lower by over 22% on Feb. 16 following a cautionary statement from the smart TV operating system company.

Roku’s fourth-quarter earnings highlighted that the upcoming year is expected to be “challenging” due to a deceleration in spending within the entertainment industry.

The company did, however, report a beat on its fourth-quarter financial results.

For details on fourth-quarter results, read: Roku Q4 Earnings Highlights: Revenue Beat, EPS Beat, Q1 Guidance, 80 Million Active Accounts

The results came amid an exciting earnings season. Here are some key analyst takeaways from the release.

• Macquarie Equity Research analyst Tim Nollen maintained his Outperform rating while reducing the price target from $93 to $88.
• Wedbush analyst Alicia Reese maintained Outperform rating and her 12-month price target as $120.
• Oppenheimer analyst Jason Helfstein downgraded the stock to Perform from Outperform, while removing his price target of $100 on the stock.
• Piper Sandler analyst Matt Farrell, CFA reiterated a Neutral rating and price target of $81.

Check out other analyst stock ratings.

Macquarie Equity Research on Roku

Roku “toggles the profitability lever” and reported strong financial results in its fourth quarter and the guidance for the first quarter of 2024 is optimistic, said Nollen. Despite being a leader in the U.S. device market for capturing Connected TV (CTV) ad revenue, he pointed to concerns regarding platform growth and operating costs for the rest of the year, leading to a reduction in estimates.

“Roku’s launch of its Pro Series TV marks its entrance into the higher-end TV category. It has widened its device sales distribution, adding Costco Wholesale Corporation COST and Amazon.com, Inc AMZN to BestBuy as the company looks to scale device sales,” he added.

Wedbush on Roku

Reese saw Roku’s fourth quarter as an “almost perfect quarter.” Roku surpassed its EBITDA guidance, aiming for further improvement in 2024 while prioritizing Free Cash Flow (FCF) expansion. Focused on a balanced approach to new initiatives and increased FCF, Roku, foresees growth in newfront ad spending.

New advertising products such as Roku Banner Ads and Roku Action Ads offer significant opportunities. Despite industry challenges, Roku’s initiatives are expected to drive higher-than-modeled revenue growth and consistent EBITDA growth

Oppenheimer on Roku

Helfstein expected the stock to be “range-bound until platform growth returns to high teens.” Despite near-term headwinds, the company aims to leverage its pricing and merchandising advantages to sustain its market leadership in consumer-facing connected television solutions.

Roku faces challenges in 2024, particularly in areas such as SVOD advertising, SVOD price increases and Media & Entertainment advertising, which are expected to struggle, he said.

Piper Sandler on Roku

Roku’s fourth quarter results and first quarter guidance surpassed expectations, but a ~15% after-hours dip reflects disappointment in first quarter platform revenue growth. Farrell highlighted concerns including a lack of acceleration in platform revenue, limited expansion in adjusted EBITDA estimates and an uneven ad market recovery.

While management expects adjusted EBITDA positivity in 2024 and sees a year of innovation and growth, Farrell believed caution should prevail. The company’s streamlining efforts are acknowledged, but a more optimistic stance awaits clarity on the platform revenue growth outlook.

ROKU Price Action: Roku stock was trading at $71.79 at the time of publication Friday.

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