- Reports Q2 2019 results on Wednesday, Aug. 7, after the close
- Revenue expectation: $223.86 million
- EPS expectation: $-0.23
For investors seeking high-octane growth, shares of Roku (NASDAQ:ROKU) have proven to be a great bet this year. They've surged 233% so far, defying trade tensions, macroeconomic headwinds and the overall volatile trading environment for technology stocks.
But that remarkable rally may come under threat when the video-streaming platform releases its second-quarter earnings on Wednesday after the market close. The shares have slumped in the past 3 sessions, ending Friday down 0.3% at $100.53.
Roku is expected to report an adjusted loss of about $0.23 a share on revenue of about $224 million, which would represent revenue growth of more than 43%. Roku, which went public in 2017, sells devices that permit users to stream video on their televisions. It also sells advertising on the Roku Channel and allows TV networks to sell spots that target specific audiences.
Over the years, Roku has seen explosive growth as a tech platform that’s already preloaded on certain TVs. According to Bloomberg data, 10 of the top 20 selling TVs on Amazon are Roku-connected TVs. To add depth to its revenue base, Roku also sells ads for its free streaming product called The Roku Channel, which offers a variety of network and other TV shows and entertainment.
Major Boost
One major boost that many analysts see for Roku is that large media giants, such as Disney (NYSE:DIS) and AT&T (NYSE:T) are preparing to launch their own streaming services and these additions are likely to increase demand for Roku’s products and services.
The stock has been volatile ever since its market debut in 2017. The price surged more than 40% in the first nine months of 2018, before ending the year down by the same amount. And so far in 2019, Roku has more than tripled in value, outperforming almost every other technology stock.
But after this remarkable rally, there are reasons to be cautious about Roku. Its shares trade at around 14 times their sales. That is lofty even by tech stock standards: Amazon.com (NASDAQ:AMZN) , for instance, trades at around 3.5 times sales, while Apple (NASDAQ:AAPL) trades at 3.56 times sales.
On these concerns, RBC Capital Markets downgraded Roku to sector perform in July, citing valuations that have become “less compelling” following the powerful advance this year.
Currently, seven analysts recommend buying Roku while another seven have a hold rating on the stock, according to Bloomberg data. Two firms have sell ratings, while the average price target of $84 implies downside of about 16%.
Bottom Line
There's nothing wrong with Roku’s business model. This company remains a great potential growth story in its niche market, which is exploding as more and more people cut cords and move to video-streaming services.
That being said, its stock is becoming vulnerable in the short-run and should be avoided. Especially ahead of earnings, which tend to be quite volatile for its stock: Roku shares have seen moves of more than 20% after each of the past four reports.