What happened
Shares of Roku (ROKU 5.41%) fell 31.5% in December 2022, according to data from S&P Global Market Intelligence. This was the eleventh time Roku's stock price dropped on a full-month basis in 2022, with the clean sweep prevented by a 6.9% uptick in November. December's plunge was also the sharpest price reduction of the year, ahead of a 28.1% drop in January. All told, Roku shares fell 82.2% last year.
So what
Within the month of December, Roku shares fell more than 5% in a single day on four occasions. Two of those downbeat days hinged exclusively on troublesome macroeconomic reports that slapped high-octane growth stocks like Roku across the entire stock market. The other two also had the drone of inflation fears in the background, but Roku's price drops were accelerated by bearish notes from Wall Street analysts.
The inflation worries are relevant to Roku's business since the media-streaming technology expert collects some revenues from digital advertising. Online ad sales struggled last year as ad buyers, both large and small, saw diminishing returns on their marketing investments, and therefore tightened their ad budgets.
Now what
Soft ad sales and a weak holiday season for Roku-powered smart television sets scared investors away in 2022, and the story didn't change in December. Keep in mind that operating costs are rising in this inflationary economy and Roku has chosen to absorb those expenses instead of passing the buck to customers through price increases. Future Roku investors will probably look back at the holidays of 2022 as a dark period with modest sales growth and large bottom-line losses.
Then again, they may also remember this period as an attractive opportunity to buy the stock at low prices. Thanks to crashing share prices and dramatically higher revenues, Roku's price to sales ratio has fallen below the ratios of time-honored value stocks such as soda giant PepsiCo and tobacco titan Philip Morris International:
ROKU PS Ratio data by YCharts
I would argue that market makers are overreacting to Roku's advertising weakness. That revenue stream is most certainly not responsible for the majority of Roku's total sales, or the company would have to break it out from the "platform revenue" division for reporting purposes.
In fact, Roku's bargain-bin stock price looks like a massive mistake and I have been adding to my own Roku position hand over fist in recent months. You should consider doing the same, as long as you believe that the streaming media market has many years of impressive growth yet to come.
