* Reports 3Q 2019 results on Wednesday, November 6, after market closure
* Turnover forecast: $ 256.1 million
* EPS expectation: – $ 0.28
For investors looking for a high octane, shares of video streaming platform provider, Roku ] Inc. (NASDAQ 🙂 have proven to be a great bet.
Roku, which was made public in 2017 at the bid price of $ 14 per share, sells devices that allow users to stream video on their televisions. It also sells ads on the Roku channel and allows TV networks to sell spots that target a specific audience. The shares have since gone up nearly 900% and ended yesterday's session at $ 139.57.
Over the years, Roku has seen explosive growth as a technical platform that is pre-loaded on certain TVs. According to Bloomberg data, 10 of the 20 most sold TV & # 39; s are on Amazon (NASDAQ 🙂 & # 39; s with Roku connection.
To add depth to its revenue base, Roku also sells advertisements for its free streaming product The Roku Channel, which offers a variety of network and other TV shows and entertainment. The company's revenue is driven by ads on the streaming platform and is expected to increase by 48% this year to $ 1.1 billion.
In the third quarter, released today, Roku is expected to show 50% revenue growth to around $ 256 million, according to analysts' consensus forecast, with an adjusted loss of $ 0.28 per share. According to a Bloomberg estimate, Wall Street is looking for around 2 million new active accounts that were added in the quarter, which would mean a gain of 36% over the previous year.
Roku is able to triple its user base in the next three years by expanding to global markets, as it benefits from the growing demand for connected TV devices and advertisements, Macquarie analysts said last month. According to the forecast, Roku could reach 72 million users in 2022, compared to the 30.5 million active users it reported in the second quarter.
"We know little about the international rollout plans, or the costs after this year, that we assume will increase as marketing demand emerges," Macquarie analyst Tim Nollen said in a note. "Roku & # 39; s growth path internationally can fit well with that of Netflix (NASDAQ :), which has also tripled in the last 3 years."
Threat from larger rivals
With these strong expectations, some analysts also raise red flags and ask for caution from buyers of Roku shares at these high levels. The main threat to this great technical success story is that larger players come up with their own products.
Facebook Inc (NASDAQ :), released in September, a new model of its Portal video chat device that can be connected to a TV and has access to the streaming service Amazon.com (NASDAQ :). The Portal TV can be connected to a TV with a standard HDMI cable and has a camera and various microphones to enable video calling via Facebook's Messenger and WhatsApp services. Comcast Corp (NASDAQ 🙂 has recently offered a similar device for its internet-only customers.
The threat of competition has created uncertainty in the otherwise undisputed rise in Roku. After falling more than 40% since the record at the beginning of September, Roku's stock is on the rise again. Despite a decline of 6.6% during the last four trading sessions, shares have still risen by more than 350% in 2019, better than almost all other technology stocks.
Bottom Line
Roku is on track to produce another strong quarterly profit when it reports Q3 earnings today. The company's growth prospects look bright with a strong cyclical shift to streaming video. The last three reports turned out to be outbursts, with a stock that rose more than 20% in each of the three days following the release. That said, Roku's shares react very negatively to competitive pressure, suggesting that the current rally in its shares has peaked and that it could now be a risky move.
