Last June I called Roku (NASDAQ:ROKU) an “interesting speculative play” and if you put money into ROKU stock then, you’ve been on a rollercoaster.
Roku stock price more than doubled to $75 by October, at which point I said Roku was “poised to retreat.” By Christmas, the stock was down in the mid-20s. If you took my June advice but ignored October, you were unhappy.
But there was another turnaround coming, and by February I noted that “everybody suddenly loves Roku stock,” with the shares just below $50 each.
Everybody did love it, because by March Roku was at $70. It has since been bouncing around. Currently, ROKU trades around $64. So you might be wondering what I think the shares will do next.
Pay Attention
The point here isn’t that I’m a stock price savant. The point is that Roku shares are highly volatile, driven by the shifting moods of traders, and you must pay careful attention to them.
Generally, however, the direction of Roku stock has been up. Shares are up over 90% over the last year, even with last fall’s collapse, and for good reason. Roku doubled its quarterly revenue from March to the end of the year, operating cash flow has been positive for three straight quarters, and there’s no debt.
Roku next reports May 8, and the number looks easy to beat. Revenues of $189 million, down by one-third from the Christmas quarter, and a loss of 24 cents per share is expected. Roku’s business model is to sell streaming devices, then offer other streams and its own ad-based services on top of it. Rokus were a popular Christmas present, but you don’t buy Christmas presents in February, so only part of the business is expected to be performing when Roku reports next month.
Land of the Giants
Roku’s ad business, meanwhile, lives in a land of giants, one where Roku’s market cap of $7.1 billion is puny. The stick is offered directly against devices from Amazon.Com (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL). Apple (NASDAQ:AAPL) has gotten more serious about the business with Apple TV. The big cable operators, like Comcast (NASDAQ:CMCSA) and AT&T (NYSE:T), see streaming sticks as competitors, and everyone these days seems to have their own ad-supported streaming channel.
Analysts, however, feel Roku is on firmer footing than before, a sure winner as consumers keep cutting their cable cords. Never mind that those cords are not being entirely cut. Those consumers are still on Internet service contracts, and the providers are not prevented from favoring their own offerings over any competitor.
Even hedge fund operators, who are supposed to be smart, don’t know what to do with Roku. They got into it during its spectacular rise, but most stayed for the spectacular fall. The numbers are still coming in on how many got into the latest rise, but the stock’s choppiness over the last month, down 10% from its early April high, indicates they’re as confused as we are.
The Bottom Line for Roku Stock
Roku remains a trader’s stock, not a long-term investment. It’s a stock you must pay attention to if you’re to maximize your profit.
But its fate seems clear. There are just too many big companies out there who might want it. These include the cable giants, the cloud czars and even some broadcasters desperate for a new way into consumer wallets.
Personally, I think Roku would fit very nicely inside Walt Disney (NYSE:DIS). But the valuation is still so low even CBS (NYSE:CBS), with a market cap of $19 billion, could afford it. Which means the auction, once it starts, should be fun.
If I’m buying Roku stock today, the takeout is my payoff.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and AAPL.
