Share This Article

Facebook LinkedIn
Twitter Reddit
Print Email
Pinterest Gmail
Yahoo
Money Morning
×
Login Archives Your Team About Us FAQ
[mmpazkzone name="azk58712-mobile-nav" network="9794" site="307044" id="222451" type="5"]
  • Subscribe
Enter stock ticker or keyword
×
[mmpazkzone name="azk58712-mobile-sticky" network="9794" site="307044" id="222451" type="5"]
Join 100,000+ Like-Minded Investors Today
Twitter
Tags: Stocks
Stocks: amzn, ROKU

Why the Roku Stock Dip Is Not the Bargain You Want

By Money Morning Staff Reports, Money Morning • May 12, 2021

Start the conversation

Leave a Reply Click here to cancel reply.

You must be logged in to post a comment.

Roku stock is down 33% in the last three months. Sure, this might look like a buying opportunity in so many ways.

First, the company dominated the stay-at-home stock trend, pushing the stock from $80 to $460, or 475%, within a year.

And even while we phase out of the stay-at-home trend, Roku threatens to dominate the streaming TV industry overall. The company has over 43 million active accounts and counting.

On top of that, it just delivered a killer quarterly earnings report.

What's to stop you from buying?

Now, with Roku stock on a hefty dip, you may feel invited to swoop right in for another quadruple return. But don't be fooled.

We'll help you decide when to buy Roku right now. First, here are a few things you should know about the company currently.

Why the Pandemic Was Good to Roku

Roku Inc. (NASDAQ: ROKU) has been one of the leaders of the cord-cutting movement. The company makes streaming players and smart TVs and operates the Roku streaming platform. It has hundreds of channels available, and you can select just those you want to pay for and enjoy. There are also free streaming services that offer news, entertainment, and even live sports.

Roku has all the premier paid streaming networks like Discovery Plus, Disney Plus, HBO Max, Paramount Plus, Peacock, Amazon Prime Video, AppleTV, Hulu, and Netflix. That means users can pick the content they want and skip everything else.

The average cord cutter that switches from a cable TV option to the cafeteria-style streaming services offered by ROKU can save hundreds of dollars annually.

The pandemic was a huge boost for Roku. Millions of people were stuck at home with nothing to do but watch TV. The idea of saving money and only using the channels you really want made a lot of sense to people stuck at home worrying whether their jobs were essential or not.

Roku was a significant beneficiary. People bought up the device, and advertising money flowed into the service.

We're still seeing the effects of that in 2021, with the Q1 Roku earnings report.

Check Out Roku's Solid Earnings for Q1

Earlier this month, Roku reported first-quarter earnings of $76.3 million, or $0.54 a share. That was not only a vast improvement over last year's quarter loss of $54.7 million, or $0.45 a share. It blew away analysts' expectations of another $1.30 per-share loss.

It was a blowout quarter. Platform revenue increased 101% to $466.5 million as total hours watched jumped to over 18 billion in the quarter.

Roku added another 2.4 million accounts in the quarter and now has more than 53 million users on the service.

It was the fourth consecutive positive earnings surprise and the third triple-digit surprise in a row.

These better-than-expected results have analysts scrambling to raise their estimates for both 2021 and 2022.

The stock rallied briefly after the report but has sold off sharply since. Roku has fallen from $377 to today's level. Shares broke below $300 briefly before recovering a little.

With such impressive results, why is the stock dropping?

Why Roku Stock Is Falling

One reason is that traders are starting to sell the stay-at-home stocks.

The end of the pandemic is in sight. People are going back to work, and more states are opening their economies all the way this month. Viewing hours of all streaming services will likely decline.

It is also worth noting that the streaming market becomes more competitive every day.

Roku is going head to head with giants like Alphabet Inc. (NASDAQ: GOOG), Apple Inc. (NASDAQ: AAPL), and Amazon.com Inc. (NASDAQ: AMZN), as well as streaming-enabled gaming consoles from Sony Corp. (NYSE: SNE) and Microsoft Corp. (NASDAQ: MSFT).

BEST STOCKS FOR 2021

Wall Street insider Shah Gilani reveals the names of 5 obscure stocks that could dominate 2021 in this free video.

Watch Now

BEST STOCKS FOR 2021

Wall Street insider Shah Gilani reveals the names of 5 obscure stocks that could dominate 2021 in this free video.

Watch Now

Those are some heavy hitters with a massive amount of cash to spend on pursuing market share if they choose to do so.

Some of the bigger streaming networks like Walt Disney Co.'s (NYSE: DIS) Disney Plus, Netflix Inc. (NASDAQ: NFLX), and Hulu have balked at paying the 20% revenue cut that Roku wanted and negotiated lower-priced deals. It is highly likely that other networks will start pushing for similar fee reductions.

In a highly competitive market, Roku cannot afford to lose popular networks, so it will have to accept some lower fee arrangements.

With that said, here's the outlook on Roku's place in the cord-cutting market.

Should You Buy Roku Stock Today?

Cord-cutting is here to stay. Roku will keep growing, but as competitors start to focus on their streaming operation, growth rates will begin to slow from the current rapid pace.

One of the most significant issues impacting Roku right now is valuation. The company is now projected to make $0.31 a share.

That means the stock is trading for more than 900 times what Wall Street hopes it will make this year.

Next year, the estimate is for profits of $0.99 a share.

That means the company is trading for more than 300 times profits in 2022.

The stock trades for more than 20 times sales.

Roku is priced for perfection and beyond. But with the increased competition and pricing pressures, it will be difficult for Roku to grow fast enough to justify the current price.

The other problem the stock has right now is that Cathie Woods Ark Investments is one of the largest shareholders. In fact, Roku is the fourth largest holding in the Ark Innovation Exchange (ARKK) traded fund.

Any time there is excessive selling in the ETF, shares of Roku will automatically be sold.

Ark Innovation shares are down more than 30% in the past three months, putting some serious headwinds in front of Roku shares.

Roku is a great company. It will still grow faster than most.

It is just not anything remotely resembling a bargain, even after the recent sell-off.

The Complete List of Best (and Worst) Stocks for 2021

Wall Street insider Shah Gilani says 2021 could be a gold mine for Americans.

He's showing his subscribers exactly which stocks to buy and which to sell.

But you're getting it all for free - no sign-up or credit card required.

Prices, tickers, and company names will be coming your way fast.

It's all right here.

Follow Money Morning on Facebook and Twitter.

ABOUT MONEY MORNING

Money Morning gives you access to a team of market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

QUICK LINKS
About Us How Money Morning Works FAQs Contact Us Search Article Archive Your Team Text Messaging Terms of Use
TOPICS
AI Investing Best Stocks to Buy Stock Forecasts Stocks to Sell Now Technology Stocks Best REITs to Buy Now IPO Stocks Penny Stocks Dividend Stocks Cryptocurrencies How to Trade Options Best Trades to Make Now Options Trading Strategies Weekly Trade Recommendations Income Investing Guide Retirement Articles Special Investing Reports Meet Our Experts
PREMIUM SERVICES
Money Map Press Home Fast Fortune Club Microcurrency Trader Rocket Wealth Initiative Quantum Data Profits Darknet Alpha Accelerators Brutus Alerts Resource Traders Alliance Rob Roy Trader Long-Term Equity Profits

© 2023 Money Morning All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning.

Address: 1125 N Charles St. | Baltimore, MD, 21201 | USA | Phone: 888.384.8339 | Disclaimer | Sitemap | Privacy Policy | Whitelist Us | Do Not Sell or Share My Personal Information