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Why Roku's Stock Soared 23% Today

By Anders Bylund – Updated Apr 17, 2019 at 10:05AM

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The streaming media veteran crushed Wall Street's expectations in the holiday quarter.

What happened

Shares of home entertainment specialist Roku (ROKU 5.60%) surged as much as 23% higher on Friday thanks to a strong fourth-quarter report. The stock pulled back to a slightly milder 22% gain as of 2 p.m. EST.

So what

The provider of devices and services tied into various streaming audio and video solutions saw its fourth-quarter sales rise 46% to $276 million. On the bottom line, earnings fell from $0.06 to $0.05 per diluted share. The analyst consensus had been pointing to earnings near $0.03 per share on net revenues in the neighborhood of $262 million.

A smiling, cheering young couple watching TV on the living room couch.

Image source: Getty Images.

Now what

Roku's streaming-device sales rose by 21% while platform revenues soared 77%. Since the software-based platform also carries much lower costs of revenue than the hardware-based segment does, Roku doesn't mind the lower-cost business outgrowing the streaming devices division. The additional gross profits were poured right back into the business as Roku boosted its research and development budgets by 63% while nearly doubling its sales and marketing expenses.

Check out the latest Roku earnings call transcript. 

This company is behaving like a classic high-growth upstart, and the stock has been appropriately volatile. Roku investors have enjoyed a 68% gain so far in 2019, but share prices are actually back almost exactly where they were 52 weeks ago. Today's positive market reaction to a solid holiday quarter looks correct to me.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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