Roku Stock Has Taken A Beating. Will Q1 Earnings Change Things?

Roku (NASDAQ:ROKU) is likely to report Q1 2022 results on April 28. We expect revenue to grow by about 27% year-over-year to around $730 million in Q1, slightly ahead of consensus estimates, although this would mark a considerable slowdown from growth rates of close to 79% in Q1 2021. We project that net losses will stand at about $0.15 per share.

So what are some of the trends that are likely to drive Roku’s stock this quarter? The demand tailwinds that the company saw through Covid-19 are likely to cool as people increasingly head outdoors and rely less on streaming services for entertainment. For example, streaming bellwether Netflix recently reported that it lost net subscribers for the first time in almost 10 years during Q1 2022. This could hurt growth rates for Roku’s platform business, which sells advertisements and content. Moreover, the tight component supply conditions, rising costs, and shipping constraints in the consumer electronics industry are also likely to continue impacting Roku. While the streaming device sales and margins could remain under pressure, new subscriber figures in the platform business could also be impacted in the near term, considering that Roku relies primarily on new smart TV and streaming box sales as a means of customer acquisition. That being said, we expect Roku to continue to improve the monetization of its existing users, although soaring inflation could limit spending by advertisers to an extent. For perspective, over Q4 2021, average revenue per user rose by over 40% year-over-year to $41.

Now Roku stock has declined by over 50% year-to-date, due to concerns of slowing growth and also as the broader market pivots away from unprofitable growth stocks and technology names to value stocks and bonds. However, we think Roku stock is undervalued at current levels, trading at just about 4x 2022 revenues – well below historical multiples and also below other digital video advertising players such as The Trade Desk. If the company is able to deliver an earnings beat over Q1, while showing signs that its hardware and platform growth-related headwinds are easing, we could see a meaningful rally in the stock in the near term. We value Roku stock at about $184, which is roughly 80% ahead of the market price.  See our analysis on Roku Valuation: Expensive or Cheap for more details on what’s driving our price estimate for Roku. Our analysis of Roku Revenue has more details on the company’s business model and key revenue streams.

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