Why Roku Stock Took a Dive Today
Roku posted solid growth on the top and bottom lines, but investors were still unsatisfied with the report.
After it surged through May and June, investors seemed to think the stock had run too high.
Roku's losses are improving, but investors typically demand faster growth from an unprofitable company.
10 stocks we like better than Roku ›
Shares of Roku (NASDAQ: ROKU) were tumbling today even though the leading streaming distribution platform topped headline estimates. Investors still seemed to find fault with key metrics in the quarter, as well as with its guidance and valuation.
As a result, the stock was down 15.5% at 2:14 p.m. ET.
Roku is moving in the right direction
Roku is still losing money on a generally accepted accounting principles (GAAP) basis, but the company is making strides toward profitability.
In the second quarter, Roku reported revenue of $1.11 billion, up 15% from the quarter a year ago, which was better than estimates at $1.07 billion.
Revenue from devices was down 6% to $135.6 million, which could be a bad sign, as device sales help grow its customer base. Platform revenue, its core business, which is driven by advertising and subscription revenue share, was up 18% to $975.5 million. Streaming hours watched rose 17% to 35.4 billion, a positive trend for consumption.
On the bottom line, the company showed improvement as adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 79% to $78.2 million. GAAP operating loss, meanwhile, narrowed from $71.2 million to $23.3 million.
With the help of $28 million in other income from interest and strategic investments, Roku reported a GAAP per-share profit of $0.07, up from a loss in the quarter a year ago of $0.24 and better than estimates at a per-share loss of $0.16.
Management credited its solid growth to "strong performance in video advertising and the successful acquisition of Frndly," as well as new ad tech integrations, including with Amazon.
What's next for Roku
Looking ahead, Roku expects $1.205 billion in revenue for the third quarter, or 13% growth, though that was ahead of the consensus at $1.17 billion. Its full-year revenue guidance of $4.65 billion was slightly below the average estimate at $4.66 billion.
The company also announced a $400 million share buyback program.
Overall, the results weren't the kind that typically lead to a double-digit decline. However, investors seem frustrated with Roku's operating losses and its valuation, considering it's expected to grow only in the low teens to midteens for the rest of the year.
The stock soared in May and June, benefiting from the broader market recovery and its new ad partnership with Amazon. In that context, today's pullback seems to be more of a reset than a new trend in the stock.
Should you invest $1,000 in Roku right now?
Before you buy stock in Roku, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Roku wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $625,254!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,090,257!*
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