What happened
Roku (ROKU 0.15%) shareholders just got a break from the negative programming they've been watching lately. The streaming video giant's stock rose 11% by 1:30 p.m. ET on Friday to easily outpace the 2.6% rally in the S&P 500.
The spike only erased a small portion of recent losses for the stock, which remains lower by nearly 60% so far in 2022. But the rebound also reflects rising optimism about Roku's business model in potentially volatile economic times.
Image source: Getty Images.
So what
The clearest factor driving Roku's stock higher on Friday is the rebound in tech stocks following an intense selling focus in this area. The Nasdaq Composite index jumped nearly 4% in early trading, and peer Netflix rose at the same rate. The Nasdaq remains lower by roughly 25% so far this year.
But Roku has also drawn more excitement from investors following its early May earnings report. That announcement showed that the business is still gaining subscribers and engagement, leading to more advertising revenue.
There is still a huge amount of spending that's set to shift into the streaming content space from the broadcast TV world, and Roku stands to benefit from that move.
Now what
The company faces significant challenges in the short term. These include soaring costs for its streaming hardware and weaker sales of smart TVs compared with 2020 and 2021. These factors, plus slower consumer spending growth overall, might pressure the streaming video industry over the next several quarters.
Yet Roku's platform is still providing lots of value to advertisers and TV fans, and that success implies a much bigger global sales base over time. That optimism spurred a bigger bounce higher for the stock on Friday at a time when many investors tiptoed back into growth stocks.
