Buy Roku Stock After Strong Q4 Earnings As Streaming Market Grows?
Zacks Investment Research | Feb 22, 2019 06:07AM ET
Roku (NASDAQ:ROKU) shares soared over 25% Friday after the company reported better-than-expected Q4 earnings and revenue results Thursday. This came after Roku stock jumped earlier this year on the back of impressive preliminary streaming metrics. The question is should investors buy Roku stock with the streaming market set to expand far beyond Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) ?
Q4 & Full-Year Overview
Roku’s adjusted quarterly earnings came in at $0.05 per share, which topped our Zacks Consensus Estimate that called for $0.02 per share. This did mark a slight downturn from the year-ago period’s $0.06 per share, but investors and Wall Street clearly don’t seem too concerned about the relatively young streaming firm’s bottom-line just yet. Plus, total streaming hours skyrocketed approximately 69% to hit 7.3 billion.
Roku’s Q4 revenues soared over 46% from the year-ago period’s $188.3 million to reach $275.74 million, which easily surpassed our $261.25 million estimate. The company has now topped consensus revenue estimates in the trailing four quarters.
For the full-year 2018, Roku’s revenues surged 45% to $742.5 million, while gross profit climbed 66% to reach $332.1 million. The firm added 7.8 million, or 40% more active accounts in 2018 to close the year with 27.1 million. On top of that, Roku’s full-year streaming hours jumped by 62%, or 9.2 billion to 24.0 billion hours.
Roku closed regular trading hours Friday up 25.23% at $64.47 a share. This marked an 18% downturn from Roku’s 52-week high of $77.57 a share and gives the stock plenty of room to run.
Outlook
Roku sells devices that allow customers to watch streaming services such as Netflix, Hulu, and Amazon Prime all in one place. The Los Gatos, California-based company currently boasts a larger market share than rivals like Apple TV (NASDAQ:AAPL) , Amazon Fire TV, and Google’s (NASDAQ:GOOGL) Chromecast, according to eMarketer. In fact, more than one in four smart TVs sold in the U.S. last year were Roku TVs.
Meanwhile, the Roku Channel allows users to watch free streaming movies and TV shows. The company also sells advertising on the Roku Channel and has a marketplace that allows marketers to buy targeted ads. Earlier this year, Roku said it would allow users to buy pay-TV subscriptions through its Roku Channel, much like how Amazon lets users purchase HBO and other subscription-based services through its Prime Video platform.
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Furthermore, Roku is likely to benefit from the expected entry of Disney (NYSE:DIS) , AT&T (NYSE:T) , Apple, and NBCUniversal (NASDAQ:CMCSA) into the streaming TV market over the next year. Roku is also in the early stages of its international expansion, with the firm expected to see its investments begin to pay off in 2020. This is important because the firm sees active account growth as one of its biggest long-term drivers of profit and loss.
Bottom Line
Looking ahead, the company expects its full-year 2019 revenues to grow roughly 36% to reach $1 billion. The company also hopes to increase its per-user monetization efforts. “Powering the world’s TVs is a big opportunity and we believe that we are still in the early days of our growth,” the company said in a statement. “
"We are making investments now in our business that we expect will continue to build our momentum. At the same time, we are strengthening our long-term position of influence in the TV streaming industry.”
Overall, it doesn’t seem that hard to imagine Roku stock climbing in 2019 as more people abandon traditional paid-TV in favor of the quickly expanding streaming TV market. And with Netflix stock’s days of outsized growth perhaps in the past, Roku stock could be a standout out in the industry.
Wall Street’s Next AmazonZacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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