Roku’s Outlook Is Tough, Should You Buy, Sell Or Hold The Stock?

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digital media streaming company year Q3 2022 posted a better-than-expected set of results, though its outlook for the holiday quarter was weak, causing the stock to drop nearly 19% in after-hours trading on Wednesday. Over Q3, Roku’s revenue grew 12% year-over-year to $761 million, driven by the platform business that sells advertising and content. Platform revenue grew 15% versus last year, with Roku also adding 2.3 million new active new accounts, well above levels seen in both 2019 and 2021. Although Roku’s net loss was lower than expected, its profitability continues to be weighed down by weak margins. The media player business — which sells the company’s streaming boxes — and rising operating expenses, which were up 70% over the prior year. Despite the better-than-expected results, the near-term outlook for Roku appears challenging. The US economy is facing growing adverse conditions affecting discretionary spending by consumers and hurting marketers’ advertising budgets. For Q4, which is typically its seasonally strongest quarter, Roku forecast revenue of about $800 million, a decline of about 7.5% over the prior year.

After a sell-off during after-hours trading on Wednesday, Roku stock is down more than 80% year-over-year. While we lowered our price estimate for Roku from $96 per share to $71, our valuation is still approximately 60% ahead of current market value. Roku currently trades at only 1.5x Consensus 2023 revenue — more than 10x in 2021 and well below other digital advertising players such as The Trade Desk (12x), Snap (about 3x), and Meta (about 2x). While Roku’s business is facing adversity, we think its lucrative platform business should continue to expand long term as advertising dollars continue to move from linear TV to digital video formats. For perspective, Roku’s platform saw sales rise by 26% in the first nine months of the year, compared to Meta, which saw sales remain essentially flat over the same period, and Snap, which grew sales by about 17%. Of. View our analysis year of assessment, expensive or cheap For more on what’s driving our price estimate for Roku, read on. our analysis year of revenue There is more detail on the company’s business model and major revenue streams.

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