The stock market has been on pins and needles lately. That's been particularly evident in the volatile nature of major stock index movements, which seem to soar one day and fall the next. After a big drop of nearly 3% on Thursday, the Nasdaq Composite (^IXIC -0.16%) looked poised to claw back some of its lost ground on Friday morning. As of 8 a.m. ET, futures on the Nasdaq were up 98 points, or 0.7%, to 14,262.
Yet those gains might have been bigger were it not for a couple of stocks that are weighing heavily on market sentiment on Friday morning. Both Roku (ROKU -0.11%) and DraftKings (DKNG -0.08%) have gotten a lot of attention from shareholders in the past year, and many had hoped that their latest quarterly financial reports would restore some confidence after recent losses. Unfortunately, that wasn't the case, and as you'll see below, both companies have some work to do in order to get back into investors' good graces.
Roku fades out
Shares of Roku were down more than 25% in premarket trading on Friday morning. The streaming television pioneer continued to see substantial growth in its latest financial results, but some challenges held it back from the full potential that shareholders see in the business.
Roku's fourth-quarter numbers told the story. Revenue was higher by 33% year over year to $865 million, with a 49% rise in platform-generated sales offsetting a 9% drop in revenue from Roku's players. Revenue per user jumped 43% to move above $41. However, substantial drops in margin figures led to a massive 67% decline in operating income.
Some key operating metrics also saw slowdowns. Active accounts moved above 60 million, up 8.9 million or 17% from year-ago levels. Streaming hours rose 15% to 19.5 billion for the quarter, which was significantly slower than the nearly 25% gain for 2021 as a whole compared to 2020.
Investors particularly disliked Roku's guidance, which included first-quarter revenue growth slowing to 25% year over year. The company sees supply chain disruptions continuing to hurt its television unit sales, which in turn could affect growth in active subscription accounts. Moreover, Roku won't risk passing higher costs on to customers, instead accepting negative gross margin on players until conditions normalize. Expectations for full-year sales growth of 35% in 2022 weren't what high-growth investors were looking to see, and that's a big part of why Roku's stock isn't painting a pretty picture Friday morning.
DraftKings isn't a sure thing
Meanwhile, shares of DraftKings were down 14% in premarket trading. The online sports betting specialist reported fourth-quarter results that didn't appear to shareholders to be a winning proposition.
DraftKings' numbers did show better growth than the company itself had projected. Revenue of $473 million in the fourth quarter was up 47% year over year, which was 8 percentage points better than the growth rate in DraftKings' guidance. Monthly unique paying customers for the period averaged 2 million, or 32% higher than in the year-earlier period. Average revenue per paying player rose 19% to $77, with DraftKings citing increasing interest in its sportsbook and iGaming product offerings.
DraftKings also boosted its 2022 revenue guidance. The company now expects sales of $1.85 billion to $2 billion, up $100 million to $150 million from its previous range. The launch of mobile sports betting in New York and Louisiana in January 2022 will play a key role in producing that growth, and it doesn't include the potential impact of adding more states to the DraftKings lineup later in the year.
Unfortunately, DraftKings' report didn't live up to the higher expectations of its shareholders, and that motivated the sharp decline in the stock price. That's been an ongoing theme this earnings season, and it could cause further negative sentiment about other high-growth stocks that have yet to release their latest results.