What happened
Shares of streaming company Roku (ROKU -10.29%) fell 15% in February, according to data provided by S&P Global Market Intelligence. It reported less-than-stellar fourth-quarter results, disappointing investors.
So what
Roku is one of the biggest names in the streaming revolution. It has two segments: a hardware segment, which markets streaming devices, and a software segment, which has deals with streaming networks and advertisers.
Image source: Getty Images.
The device segment has been struggling for a while as it deals with supply chain challenges and rising costs. Revenue for this segment declined 9% year over year in the fourth quarter. The platform segment has been its stronger business, and revenue for this segment increased 49% over last year in the fourth quarter, a deceleration. That's more surprising, given the continued practice of "cord-cutting," or viewers switching from traditional TV to streaming services. That trend hasn't changed.
Growth was still strong. Total revenue increased 33% over 2020, active accounts increased 17% over last year to 60.1 million, and viewing hours increased 15% year over year and were also up sequentially.
Sales of $865 million came in below average analyst estimates of $894 million. For the 2022 first quarter, Roku is guiding for year-over-year revenue growth of about 25%, another slowdown.
Now what
Roku is still posting some impressive stats. It's still the No. 1 operating system in the U.S., accounting for 1 out of every 3 streaming players sold. It's holding its own against mega-competitors such as Amazon and Apple.
It's still expanding into new markets, and viewers are increasing their hours using the platform, which strengthens its opportunities with advertisers. However, management is expecting ad sales to slow as advertisers themselves deal with global uncertainty.
It's difficult to determine right now whether the company's struggles are truly temporary or if they indicate deeper troubles than meet the eye. That makes it harder to say this is an easy buy-on-the-dip opportunity. Compounding that is that it displayed so much growth in the early stages of the pandemic, and its stock price rocketed so high at that time that at this point it's not so clear how correctly it's being valued. It posted surprise profits for several quarters, but with sales growth contracting, it's not reliably profitable. Shares trade at a price-to-sales ratio of 7, which is fairly expensive for a company that's not high-growth.
I still find the long-term premise compelling, but at this valuation combined with uncertainty, I would wait to buy shares.
