Last Friday, Roku (ROKU) stock endured its worst day since 2018, falling by 22% after the streaming company’s Q4 results and outlook failed to impress.
Supply chain snags that sent TV prices up by more than 30% resulted in soft demand for Roku TVs and led to a miss on the top-line. Revenue growth slowed down from 51% in the previous quarter to show a year-over-year uptick of 33% and reach $865 million, some way below the $894 million consensus had in mind.
Making matters worse, ARPU growth stuttered too, with the company blaming the drop on advertisers unwilling to promote supply constrained products, which led to slower ad sales growth than previously anticipated.
At the other end of the spectrum, Roku turned an annual profit for the first time, and the company outdid the estimates in Q4, delivering EPS of $0.17 – a $0.13 beat.
However, with an eye on the prize of dominating streaming platforms, Roku will use the profits for investment purposes. The company will spend on its operating system, the Roku Channel, and the advertising business.
And that will seriously eat away at the bottom-line, with the Q1 guidance for EBITDA now standing at $55 million, compared to the previous consensus estimate of $81 million. Moreover, the company also expects the supply chain disruptions to continue for a while, guiding for Q1 revenue of $720 million vs. the Street’s expectation of $756 million.
So, plenty of bad news, as noted by Wedbush’s Michael Pachter, whose advice is to look beyond the near-term. “For many investors allured by the significant leverage in Roku’s model and the relatively rapid pace to profitability, this reversion to minimal EBITDA is a deal-breaker,” the analyst said. “The near-term outlook is troubling, with various headwinds driving active account growth below recent norms while spending rises. We expect Roku to remain in the penalty box with investors for some time. However, we think Roku’s TAM is bigger than ever and we continue to view Roku as a sound long-term investment as the company is positioning itself for the future.”
Although Pachter sticks with an Outperform (i.e., Buy) rating, the price target is reduced from $220 to $150, suggesting room for 23% upside in the year ahead. (To watch Pachter’s track record, click here)
The Street’s average price target is a more optimistic $190.58, implying shares will appreciate by 56% over the coming months. Most analysts remain on Roku’s side though not all are convinced; the stock’s Moderate Buy consensus rating is based on 15 Buys, 1 Hold and 3 Sells. (See Roku stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
