Is now a good time to buy Roku (ROKU) stock? This is the main question investors will want an answer to when the company reports third quarter fiscal 2022 earnings results after the closing bell Wednesday.
The company has enjoyed both rapid revenue and account growth, thanks to the continued shift away from traditional media. The streaming industry has spawned record number of new user sign-ups. However, the market has begun to question whether the company can maintain its historical growth rate. Shares of the video streaming specialist have been clobbered over the past several weeks, losing some 34% and 40% of their value in the respective three months and six months.
When factoring a drop of 11% in the past thirty days, the stock has lost 77% year to date, trailing the 20% decline in the S&P 500 index. But now could be a good time to bet on a recovery. The company recently launched wireless smart cameras to complement and tie into TV set-top boxes and internet connected devices. The company began selling the cameras exclusively at Walmart (WMT) for as low as $27 each. Roku also offers annual cloud storage plans that start at $30 per camera.
Whether on the tv screen or smartphone, consumers will now have the ability to switch between streaming entertainment content or the images on their cameras through the Roku device. For added convenience, users can also speak into the Roku TV remote to view different cameras, and to change lighting, or power an appliance. The voice commands also supports Google Assistant or Amazon Alexa. The company aims to be more integrated into the home, thereby making its product much tougher to separate from. On Wednesday the company must do its part to demonstrate that value.
In the three months that ended September, the Los Gatos, Calif.-based company is expected to lose $1.21 per share on revenue of $696.04 million. This compares to the year-ago quarter when earnings came to 48 cents per share on revenue of $679.95 million. For the full year, ending in December, the loss is expected to be $3.32 per share, reversing a per-share profit of $1.71 a year ago, while full-year revenue of $3.11 billion would rise 12.5% year over year.
Roku is still capitalizing strongly from the cord-cutting phenomenon, where consumers are canceling their bloated cable and satellite TV subscriptions in favor of streaming applications. Roku is benefiting from a rising trend in advertising dollars that are shifting from linear television to streaming. Aside from its dominant market share in streaming advertising with its Roku channel, the company also makes money on subscriptions.
Roku management has begun to target not only new revenue streams, but also ways to penetrate international markets. But the company’s recent quarterly results haven’t shown that these initiatives are gaining traction. In the second quarter not only did the company miss on both the top and bottom lines, revenue rose just 18.5% to $764.41 million, compared to prior growth of more than 70% and missing the analysts growth estimate of 25%.
The company blamed the miss on a slowdown in advertising which pressured platform revenue growth that came in at 26%. Meanwhile, player revenue declined 19% year-over-year to $91.2 million. Although gross profit managed a gain of 5% to $355 million, margins fell, while expenses rose 73% to $465.7 million. This resulted to an operating loss of $110.5 million. For the stock to rebound, the company on Wednesday must improve in each of these metrics and show that its new revenue growth initiatives are bearing fruit.
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