Prepare to Move on Roku

After Wednesday night's quarterly results, Roku shares may soon be streaming into many portfolios. The company's first-time public earnings report trounced estimates as revenue of $124.8 million surpassed estimates of $110.5 million. Roku also reported a loss of $0.10 per share versus expectations of a much wider loss at $0.28 per share. While the concept of cord-cutting is not new, the uptake and use is still very much on the rise. The market is nowhere near saturation, and the next generation of consumers is more likely to adopt streaming services from day one, as opposed to older generations still loyal to cable or simply resistant to change. There's an understanding factor, too, for older generations that will age out of the market. As millennials transition to middle-aged -- now, there's a scary thought for many folks reading this -- then we'll reach possible saturation or market peak in terms of first-world countries. As affordable high-speed internet availability reaches every corner of the globe, international expansion should help to offset saturation in the States, as well as Europe and China. We've already started to see this begin as Roku announced a move into the Philippines via Globe Telecom. It's not the revenue or even the earnings that are the driver here, although a top line growth of 40% year-over-year is impressive. I'm drawn to the 137% platform growth and the 48% increase in active accounts. Streaming hours surged 58% and I only expect those to increase, based purely on age demographics. Lastly, the average revenue per user increased by 37% year on year, keeping in line with top line revenue. The only negative one might draw from the quarter is that revenue guidance of $175-$190 million has a low end below the current estimate of $177.1 million. That being said, the midpoint is still above estimates, and the holiday selling season could propel Roku to a quarterly number above $200 million. It's difficult to chase a stock that is up 20-25%, and I probably wouldn't this morning. Roku's IPO priced at $14, with the stock trading almost to $30 before a sharp reversal. The challenge on Thursday will be judging the reactions of the huge short float in the name. Almost one quarter of Roku shares are short, and with the stock having spent most of its trading days above $20, only the shorts over the last week or two are really showing any major losses. True believers will likely push into the pop on Thursday morning. Even recent shorts are likely thinking about pressing the short this morning, or average higher. While this may give us a short-term cap in the $25-$26 range, I do think it will ultimately push shares higher, especially as we approach Black Friday. The obvious concern here is Roku becomes another Tivo device or DVR. While understandable, I do believe it is misplaced. Tivo was too reliant on other companies, whereas Roku can stand alone. It has the partners it needs and already calls Disney DIS and Amazon AMZN customers, despite Amazon having a Fire Stick. With Disney's planned move into streaming, I have to wonder if an acquisition of Roku would make sense for the Mouse, and I believe it would. Disney could acquire Roku in a stock deal and add some much-needed growth to its bottom line, as well as jump-starting its own streaming service. While The Trade Desk was named as my top Black Friday idea, I place Roku a solid number two. Watch the action over the next three days for a trading range to develop, noting the highs and lows of Thursday and Friday as key markers. Thursday will be a day to watch, but I do believe next week will be a time to move on Roku to the long side.

Prepare to Move on Roku

This company beat expectations, and has a bright outlook.

Columnist Conversation

This Weekend on Real Money

Wednesday Morning Fibocall for 1/13/2021

Tuesday Morning Fibocall for 1/12/2021

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.