What happened
Shares of Roku (ROKU 3.32%) opened Thursday's trading 17.6% lower following the streaming media expert's release of third-quarter results. Ten minutes before noon EST, the stock had recovered somewhat to a drop of 10.4%.
So what
Roku's third-quarter sales rose 50% year over year to $261 million, powered by a 36% increase in the number of active user accounts and 30% higher average revenues per user (ARPU). On the bottom line, net losses more than doubled from $0.09 to $0.22 per share. Your average Wall Street firm had been looking for a wider net loss of $0.28 per share on just $256 million of top-line revenues, so Roku exceeded the Street's stated expectations across the board.
But the stock came screaming around the bend into this earnings report, having gained a spectacular 360% year to date at the close of trading on Wednesday. Modest revenue and earnings surprises weren't enough to sustain those lofty gains, so Roku's stock came crashing down.
Image source: Getty Images.
Now what
Don't take my word for the reasons behind Roku's drop. Wall Street generally agrees.
Analyst firm Guggenheim lowered its price target on Roku's stock from $170 to $150, noting that this quarter's surprises were smaller than usual. RBC Capital boosted its targets from $155 to $160, still citing a "much smaller" revenue beat than Roku delivered in the first and second quarters of 2019. Morgan Stanley said that Roku's sky-high valuation in spite of negative earnings basically requires "continued upside surprises."
Against that backdrop, it's not surprising to see Roku's shares take a big hit on a report that simply wasn't incredibly impressive. Good enough isn't always good enough when you're investing in skyrocketing market darlings -- like Roku.
