Roku (NASDAQ:ROKU) reported its third-quarter earnings after the bell on Wednesday and the result was a bloodbath. Antsy investors had already knocked the ROKU stock price down 6% on Monday, but that was nothing compared to what’s been happening since the video streaming company announced its quarterly results.
ROKU was hammered, dropping below $120 — down 15% — in pre-market trading. Anyone who bought on Monday’s dip expecting a jump after a Q3 earnings beat is licking their wounds right now.
ROKU Q3 Earnings
On Wednesday evening, Roku released its Q3 earnings, and the results were actually pretty solid. Among the highlights: revenue of $260.9 million was up 50% year-over year, the loss of 22 cents per share handily beat expectations of a 28 cent loss, while advertising and services accounted for $179.3 million in revenue (up 79% and significantly outpacing the $81.6 million in hardware sales).
Roku added 1.7 million new users over the last quarter, for a total of 32.2 million, with users streaming 10.3 billion hours worth of video — up 68% compared to a year ago. Average revenue per user is also up.
Fiscal 2019 is looking better than the company had predicted last quarter, with ROKU now calling for between $1.098 billion and $1.113 billion in full-year revenue, and net losses of between $61 billion and $66 billion.
The numbers beat expectations across the board, and the improved guidance should have been a positive. Instead, Roku stock tanked, dropping 15% in pre-market trading.
The Big Picture for Roku Stock
Why did the market turn on ROKU when the company delivered results that were better than expected?
There has been a lot of trepidation in general about the video streaming market over the past year, which has ramped up this fall. Apple (NASDAQ:AAPL) just launched its AppleTV+ streaming service, and the arrival of Disney’s (NYSE:DIS) Disney+ streaming service is days away.
However, both of those video streaming services will be available on the ROKU platform. The one complication is that the company’s older hardware doesn’t support the new services. In fact, as of Dec. 1, “technical difficulties” mean that Netflix (NASDAQ:NFLX) will stop working on that hardware as well. However, with Roku streaming sticks available so cheaply (starting at $29.99 compared to $149 for the cheapest Apple TV), there’s a good chance those customers are going to shrug and buy a new ROKU streamer.
In addition, ROKU launched its own soundbar this quarter, giving the company a shot at selling even more hardware over the holidays.
So what triggered the post Q3 earnings beatdown? Uncertainty about the rapidly-changing video streaming landscape likely played a role. The fact that losses tripled compared to this time last year didn’t help — despite the fact that that was expected. And a decline in hardware sales may have caused some jitters.
Ultimately it may just be that investors were hoping that ROKU would beat analyst expectations by an even wider margin, and were disappointed when that didn’t happen.
Time to Scoop up ROKU Stock?
With ROKU stock sitting below $120 in pre-market trading, there’s a buying opportunity for those who see this as an overreaction.
The company’s guidance for 2019 is looking better than ever and with new video streaming services like Disney+ coming online, the demand for streaming devices and streaming-capable TVs is only going to increase. That’s good news for Roku, which is a big player on both fronts — and every user who buys one to stream anything contributes to Roku’s advertising revenue.
Despite the Q3 earnings bloodbath, Roku stock is still up over 300% in 2019. The majority of analysts see it as a “buy” as well, with the median 12-month price target of those surveyed by CNN Business at $150. That leaves significant upside for ROKU, especially when it’s been trading below $120 in the pre-market.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.