Roku Inc.

ROKU Details

Roku, Inc. (NASDAQ: ROKU) operates as a TV streaming platform in the United States. The Company operates through two segments: Platform and Player. Its Platform segment is engaged in the sale of digital advertising and related services, including the OneView ad platform, content distribution services. Its Player segment is engaged in the sale of streaming players, audio products and accessories through retail distribution channels in the United States, including brick and mortar and online retailers, as well as through the Company’s Website

Latest News:

• Walmart and Roku Debut First-of-its-Kind Partnership to Bring Commerce to TV Ads: World’s largest retailer and America’s number 1 TV streaming platform team up to create the simplest checkout experience on TV. The duo said this unique partnership evolves shopping beyond the QR code and will change the way customers interact and shop TV and video content. The new experience offers product discovery with a seamless checkout experience, enabling purchase directly at the time of inspiration.
  

Financial Highlights: Q1 FY22 Results:

• Revenue Growth: The company reported YoY growth of 28% in total net revenue to USD 734 million in Q1FY22 (ended March 31, 2022) from USD 574.18 million in Q1FY21. The drive force was growth in Active Accounts, which stood at 61.3 million in Q1FY22.
• Increased in Streaming Hours: The Roku Channel’s expanding Active Account reach and Streaming Hour engagement have significantly increased the advertising opportunities which led to Streaming Hours increased by 1.4 billion hours over last quarter to 20.9 billion
• Cash Improvement and Reduction in Debt: The company has shown constant increase in cash generation from USD 2.1 to USD 2.2 billion in cash and cash equivalents as of March 31, 2022, and also reduction in total debt on YOY basis.

Outlook:            

• Q1FY22 Outlook: In Q2FY22, ROKU expects revenue of USD 805 million, a 25% increase YoY, and a gross profit of USD 395 million.
• ROKU has a "high" Earnings Quality Ranking (EQR) for the 8th consecutive week.
• FY22 Outlook: It anticipates YoY growth of 35% in its net revenue for FY22.

Key Risks:

• Roku is in a leading position in TV OS market, but the sector remains fragmented: Among competitors, Roku's internal estimate, as of Q3 2021, Roku is the No. 1 smart TV operating system in the US but not in a commanding position. Roku has not reached the inflection point where a major TV brand would adopt its OS system (such as Samsung, LG). The TV OS ecosystem remains fragmented.
• Seasonality Risk:ROKU's sales and gross profit are typically highest in the fourth quarter of each fiscal year, accounting for a substantial share of the overall net revenue for that fiscal year, due to more lavish consumer spending and more advertising during the holiday seasons.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Source: Analysis by Kalkine Group)

Stock Recommendation:

ROKU reported solid performance in the Q1FY22, with Platform revenue up 39% on YoY, benefitting from higher content distribution and advertising revenue. Amid challenging operating environment and the company will continue to navigate through macro headwinds, including inflationary pressures, geopolitical conflict, and supply chain. Further, we believe that these near-term headwinds are dwarfed by the long-term opportunities in the secular shift to TV streaming and TV OS consolidation.

From a technical standpoint, the stock price has dropped 71.14% in the last nine months and is currently tilted towards the lower end of its 52W range of USD 490.76 (27-July-2021) and USD 72.63 (14-Jun-2022). However, on daily price chart ROKU shares are gaining momentum, with leading momentum indicator 14-day RSI hovering in a neutral zone with 52.09 and the MACD is rising and registered a crossover above 9-day SMA signal line, bullish indication. Further, on daily chart its shares moved above 21-day EMA and tested 50-day SMA, a decisive move above 50-day SMA could bring short-term strength in stock from the current trading levels.

Considering the significant correction in the stock price, robust balance sheet, strong liquidity, associated risks, technical indicators, and current valuation. We recommend a "Hold" rating on the stock at the closing price of USD 92.58 as of June 22, 2022, at 11:28 AM PDT.

  1-Year Technical Price Chart (as of June 22, 2022, at 11:28 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.