Roku (ROKU 3.73%) has had a pretty impressive glow-up this year. Shares of North America's top dog among streaming TV hubs more than doubled in 2023, soaring 51% alone in July after another blowout quarter.
With big gains come big responsibilities, especially if you happen to be an analyst or a prolific money manager. Jason Bazinet at Citi downgraded the stock from buy to neutral on Thursday. The more noteworthy move is Ark Invest's Cathie Wood unloading some shares of Roku on Monday and Thursday.
Neither move is as scary as it seems at first glance. Bazinet's downgrade also found him jacking up his price target on Roku from $75 to $100 in the process, suggesting near-term upside from current levels. Wood's selling activity is even less problematic. Let's take a closer look.
Roku like a hurricane
Roku dramatically exceeding its revenue guidance last week wasn't a surprise. It's the third time in a row that it has warned of a year-over-year decline, only to come out swinging with a modest top-line increase instead. A return to double-digit revenue growth this time was a surprise, a welcome acceleration after back-to-back reports of 0.2% and 1% upticks.
The stock has skyrocketed 117% this year, but some concerns remain. After turning profitable in late 2020 and for all of 2021, Roku has rattled off six consecutive and substantial quarterly deficits. Investing in content and subsidizing hardware for a growing platform doesn't come cheap. Average revenue per user has also tumbled as the connected TV ad market has languished since late last year.
Image source: Getty Images.
It's easy to see money managers cashing in on some recent gains, even with the stock still well below the all-time highs it reached in early 2021. Wood isn't losing faith in Roku, as the number of shares being sold this week aren't a lot. She's merely taking out the pruning shears after some pretty spectacular gains in 2023.
Roku continues to be the second-largest holding among the combined holdings of all Ark Invest exchange-traded funds. Roku still owns a little under 9% of the company's total shares outstanding. It's a huge position, and this isn't the first time that she's sold into strength. She certainly has a knack of buying when a stock she likes sells off.
We saw this happen when Tesla Motors (TSLA 17.26%) was one of the few Ark Invest favorites to move higher in 2021. She would go on to lighten her stake in Tesla in subsequent months, using the proceeds to invest in many of her hardest-hit stakes. It's true that unloading some of her position in the electric car leader proved to be the right call, as Tesla shares would go on to prove mortal in 2022 with a sharp tumble. However, Tesla never stopped being her largest holding. She was rewarded with Tesla's strong recovery in 2023. Roku's recent months of gains have made it her second-largest combined holding. Unless the pace of the stock selling picks up, it's not something for investors to worry about.
Wood knows what she's doing. Judging by its resurgent stock price, it's fair to say that Roku knows what it's doing, too.
