Is Roku an Earnings Underdog?

Roku Inc. (NASDAQ: ROKU) is scheduled to release its fourth-quarter results after the markets close on Thursday. The consensus forecast is a net loss of $0.14 per share and $391.61 million in revenue. In the same period of last year, the over-the-top media services provider said it had a net loss of $0.05 per share and $275.74 million in revenue.

The company previously issued guidance saying that it expects to see $380 million to $396 million in revenue with a gross profit of roughly $156 million to $161 million.

Following its third-quarter report, shares tumbled about 15%, but this may have been expected as the stock had practically tripled at that time. During that quarter, active accounts increased 1.7 million sequentially to 32.3 million, while streaming hours increased sequentially by 0.9 billion to 10.3 billion. Average revenue per user came to $22.58 on a trailing 12-month basis, up 30% year over year.

During the fourth quarter, Morgan Stanley released a report saying that the Roku run was over. The overriding thesis of the report is that all of Roku’s growth was already priced in to the stock. Morgan Stanley’s Benjamin Swineburne downgraded Roku to Equal Weight from Overweight but raised its price target from $100 to $110.

Although the call is still bullish on Roku’s growth prospects, Swinburne points out that Roku’s valuations have risen far higher than rival digital media players and software as a service (SaaS) companies at the same time it has much lower gross margins than most companies that are considered its peers.

Ultimately, Roku’s valuation premium will be difficult to sustain. Morgan Stanley also expects to see declines in gross margins and moderating gross profits, which skews Roku’s risk/reward to the downside.

Excluding Thursday’s move, Roku stock had vastly outperformed the broad markets with a gain of about 181% over the past 52 weeks. In the past quarter alone, the share price was only up about 7%.

Here’s what a few other analysts had to say about Roku ahead of the results:

  • Needham has a Buy rating with a $200 price target.
  • Rosenblatt Securities rates it a Buy with a $159 price target.
  • Wedbush has a Hold rating with a $105 target price.
  • RBC has a Buy rating and a $160 target price.
  • William Blair has a Buy rating.

Roku stock traded up about 1.5% at $140.32 on Thursday, in a 52-week range of $49.3 to $176.55. The consensus price target is $146.75.