Thursday, November 7, 2019

Roku Is Not Broku Despite Slump, Wall Street Says

© Reuters.  © Reuters. – Roku hit a wave of selling Thursday. But the opportunity to bag shares of the streaming-device company at an even cheaper price has prompted some optimism on Wall Street.

Roku (NASDAQ:ROKU) shares slumped more than 15% by 3:05 p.m. ET (20:05 GMT). but they remained above their session low of $116.26 following mixed third-quarter results. Guidance was trimmed, but losses were not as bad as feared.

Roku reported a loss of 22 cents a share on revenue of $260.9 million, compared with consensus estimates from for a loss of 28 cents on revenue of $256.11 million. A year ago, the company lost 9 cents a share on revenue of $173.38 million.

The plunge in Roku shares, however, has led some on Wall Street to get even more bullish on the streaming-device company.

Among the highlight of bullish calls, Rosenblatt Securities, which recently raised its price target on Roku to $159 from $134, said shares look "more compelling" following the sell-off.

In the midst of the optimism, however, one Wall Street analyst is hardly surprised by the magnitude of selling, warning that Roku may struggle to deliver blowout material beats that many expect.

Ahead of the earnings report, investor expectations were running high that the company would deliver an outsized beat and raise, but the mixed fourth quarter guidance has dimmed optimism somewhat. Pivotal Research analyst Jeffrey Wlodarczak said in a note.

The company raised its full-year revenue guidance to $1.106 billion, up 49% from a year ago. But it trimmed its forecast for earnings before interest, taxes, depreciation and amortization to $30 million to $35 million from an earlier range of $30 million to $40 million.

“We are not surprised by the ... decline indication in the stock in the after-market as an undeniably rich 12+X ’20 revenue multiple simply does not leave a lot of room for anything but material beats,” Wlodarczak said in his note.

Despite Thursday's pullback, Roku's shares are up more than 290% for the year.

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