Why Earnings Are Failing Today’s Roku Stock Bulls

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Following earnings, there’s little doubt of Roku (NASDAQ:ROKU) and its leadership position. But mixed results, both off and on the price chart, signal it’s time for investors to hit pause on any buy decisions in ROKU. Let me explain.

ROKU Stock: Why Earnings Are Failing Today’s Roku Stock Bulls
Source: jejim / Shutterstock.com

On the heels of last week’s third-quarter earnings report from Roku, it’s apparent the over-the-top or OTT device giant is still doing great. Active accounts grew by 1.8 million to 32.3 million. Average revenue per user increased to $22.58 from last quarter’s $21.06. And sales grew at 50% year-over-year. Yet shares of ROKU fell 16% in the aftermath of the report. So, what went wrong?

Some of the profit-taking could be attributed to Roku’s loss of 22 cents per share which grew by nearly 145% from the year-ago period. However, that loss was smaller than the expected -28 cents. Weak earnings guidance tied to acquisition and increased international operational costs also likely failed to lift investors’ spirits.

Roku stock is also a victim of its own success. Following several quarters of consistent Street topping growth, Q3’s marginal sales beat and raised revenue guidance which only matched Street forecasts are problematic.

Bottom line, high expectations by Wall Street are now being challenged. The trouble could be compounded by streaming offerings from competitors such as Apple (NASDAQ:AAPL) or Comcast (NASDAQ:CMCSA).

The ROKU Stock Price Weekly Chart

As a Roku user, I still view the platform as the device of choice to get one’s fill of Netflix (NASDAQ:NFLX), Amazon’s (NASDAQ:AMZN) Prime service or Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube and other streaming offerings. But investing in ROKU today is entirely a different matter.

The technical picture in ROKU stock is increasingly prone to a larger corrective period after last week’s post-earnings profit-taking. The weekly chart shows shares failed at the 62% retracement level. The failure was then confirmed by a second breakdown of trendline support. And that’s not good news for Roku bulls.

The first breach of this steeper trendline occurred in September before ROKU bottomed off a confluence of two key Fibonacci levels and a pair of other trend supports. I believe this second breakdown will prove more difficult to reclaim. Worse, in the interim much lower prices are likely.

Source: Charts by TradingView

With ROKU now challenging the failed trendline as a technical barrier and stochastics forming a bearish crossover, a topping in share price has been raised. What’s more and given Roku stock’s Q3 outcome, I believe ROKU stock is setting the stage for a well-supported, corrective double bottom near $100. And if market conditions worsen or become more opportunistic depending on your view, an even larger correction which tests $80-$85 certainly can’t be discounted.

Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2019/11/why-earnings-are-failing-todays-roku-stock-bulls/.

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