One of this month's biggest winners is Roku (NASDAQ:ROKU), soaring 16% last week and 89% for all of November. The stock's been on fire since the company posted game-changing third-quarter results in its first financial report as a public company.
Some reports earlier in the week credited the rally to a short squeeze, which is a possibility since 4.8 million shares of Roku, or roughly 30% of the public float, were sold short by the end of October. The stock had skyrocketed 70% a week earlier on the strong quarter, so it's not out of the question to think that short sellers were scrambling to cut their losses. However, the rally was cut short on Tuesday, when Oppenheimer downgraded the stock. The unflattering analyst call ate into most of Monday's 28% gain, but the stock would start moving higher again on Wednesday.
Media player is the message
Roku came through with a better-than-expected 40% spike in quarterly revenue, accelerating nicely from the pace it was on in recent quarters. Roku's quarterly loss of $0.10 a share was also a lot better than what the Wall Street pros were forecasting.
It was a monster quarter, and seeing platform revenue surge 137% during the quarter confirms that this is no longer just a low-margin hardware company. There's a higher ceiling of revenue streams trickling in as more video buffs stream through Roku's operating system. With active accounts rising 48% and average revenue per user climbing 37% over the past year, we may be seeing the hot IPO just getting started.
Jason Helfstein at Oppenheimer isn't as bullish. He's downgraded the stock to "underperform" from "perform." He thinks the stock's valuation has gotten out of hand, given its fundamentals. The $28 price target he's slapping on the stock represents 27% in downside from current levels.
Helfstein's target is double the $14 price of its September IPO, so it still makes Roku one of this year's hottest debutantes. But the volatility will continue, and the large short position relative to its thin public float will generate plenty of other big moves. Roku's growth metrics are impressive -- viewership of 3.8 billion hours during the third quarter is 58% more than the prior year perod -- but it's going to have to build on that if it wants to live up to its blowout November.