Roku, Inc.

ROKU Details

Roku, Inc. (NASDAQ: ROKU) operates as a TV streaming platform in the United States. Its website allows users to explore and access a wide choice of movies and TV episodes, as well as live sports, music, news, and more. Advertising, content distribution, audience building, and billing services contribute to platform revenue, while player revenue comes from selling streaming players and audio products.

Latest News:

• Extension of Collaboration with Amazon: On April 4, 2022, ROKU announced that it had extended its distribution partnership with Amazon for another year. Customers can continue to use their Roku devices to access the Prime Video and IMDb TV apps.

Q1FY22 Results:

• Solid Topline Performance : The company reported YoY growth of 27.78% in total net revenue to USD 733.70 million in Q1FY22 (ended March 31, 2022) from USD 574.18 million in Q1FY21. The surge in topline is attributable to massive growth in Active Accounts, which stood at 61.3 million in Q1FY22 representing 1.1 million incremental Active Accounts during the quarter, complemented by an increase in Average Revenue Per User (ARPU) from USD 32.14 in Q1FY21 to USD 42.91 in Q1FY22.
• Reported Losses: In Q1FY22, ROKU reported net loss of USD 26.31 million from net income of USD 76.30 million in Q1FY21.
• Cash and Debt Position: The company had USD 2.24 billion in cash and cash equivalents as of March 31, 2022, and total debt of USD 88.65 million.

Key Risk:

• 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. As a result, any sales decline in the fourth quarter, whether owing to reduced promotional efficacy, supply chain interruptions, or other causes, would significantly influence the company's full-year results.

Outlook:

• Q1FY22 Outlook: In Q2FY22, ROKU expects revenue of USD 805 million, a 25% increase YoY, and a gross profit of USD 395 million. In addition, it also expects a net loss of USD 109 million in Q2FY22.
• FY22 Outlook: It anticipates YoY growth of 35% in its net revenue for FY22.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

ROKU's stock price has fallen 76.32% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 78.0 to USD 490.76. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 108.42.

Considering the significant correction in the stock price, robust balance sheet, strong liquidity, associated risks, and current valuation. We recommend a "Buy" rating on the stock at the closing price of USD 87.50, up 11.15% as of May 12, 2022.

Three-Year Technical Price Chart (May 12, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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.