Roku Stock Has a Lot to Prove on Wednesday

The streaming-media device maker is gearing up to report second-quarter results. The volatile stock tends to stage big moves on earnings news.

Rick Munarriz
Rick Munarriz
Aug 6, 2018 at 3:20PM
Technology and Telecom

This is going to be a big week for Roku (NASDAQ:ROKU). The pioneer in streaming video devices reports financial results after Wednesday's market close, and expectations are understandably high. Roku has surged after two of its past three blowout quarters, and even analysts who aren't entirely bullish on the stock are jacking up their price targets so they don't get caught aiming too low ahead of the chart-altering results. The one thing we know is that Roku shares tend to be volatile during earnings season.

Roku's own guidance back in May is calling for $135 million to $145 million in revenue for the second quarter that it will discuss this week, 36% to 46% ahead of its prior year's showing. Analysts were expecting $135.3 million at the time of Roku's last financial update, and now they've nudged the average top-line goalpost to $141.5 million. Wall Street pros are also forecasting another quarterly deficit, something that growth investors are cool with at this stage of Roku's life cycle. 

Roku OS running on a TCL smart television.

Image source: Roku.

Beefing up price points

Alan Gould at Loop Capital is the latest analyst to put some air into his price targets. His goal for Roku stock is now $43, up from $30. Gould's move on Monday morning is based on the recent run of earnings surprises and the platform's growing appeal. He's modeling a 44% surge in revenue, fueled largely by a 40% pop in active accounts. 

Gould isn't bullish. He's actually sticking to his neutral rating on the shares, and his new price target is actually just below where the stock is presently trading. Jacking up his price goal just two days before the actual report is still a good sign for Roku bulls. Gould is concerned about insider selling and growing competition, but with Roku gaining market share, it's hard to bet against the stock this week. It also only helps that Wall Street is generally perched near the midpoint of its new revenue range, when Roku has historically blasted through its conservative guidance. 

Two weeks ago, we had Laura Martin at Needham -- one of the stock's more vocal bulls since shortly after last year's IPO -- bump her price target to $60, from $50. Roku's market penetration -- through both its growing collection of streaming devices and deals with smart-TV companies to lean on its proprietary operating system -- continues to impress. Roku is in the right place at the right time, and platform revenue actually surpassed product revenue for the first time ever during this year's first quarter. You can expect more of the same from here on out beyond the hardware-spiked fourth quarter. Martin sees Roku as a market beater or one that gets acquired by a hungry rival at a hefty premium.

This places investors in a win-win situation if it plays out that way. And it also may provide some downside protection if Wednesday's report disappoints, if it smokes out a potential tech giant angling for an opportunity to acquire the top dog in this niche.