Roku, Inc.

ROKU Details

Roku, Inc. (NASDAQ: ROKU) is a TV streaming platform based in the US. Users can discover and access a vast range of movies and TV episodes and live sports, music, news, and more through the company's website. Platform money comes from advertising, content distribution, audience building, and billing services, whereas player revenue comes from selling streaming players and audio items.

Latest News:

• Geographical Expansion: On February 02, 2022, ROKU announced the launch of its advertising business into Mexico, allowing marketers and content providers to reach an even larger audience with ad-supported content on Mexico's #1 TV streaming platform*. Roku has teamed with Entravision, a prominent global digital marketing and media business with local operations in Mexico, to help advertisers reach consumers successfully through advertising on the Roku streaming platform as part of the launch.

 Q4FY21 Results:

• Solid Topline Performance : The company reported YoY growth of 33.15% in total net revenue to USD 865.33 million in Q4FY21 (ended December 31, 2021) from USD 649.89 million in Q4FY20. The surge in topline is attributable to massive growth in Active Accounts, which stood at 60.1 million in Q4FY21 vs. 51.2 million in Q4FY20, complemented by an increase in Average Revenue Per User (ARPU) from USD 28.76 in Q4FY20 to USD 41.03 in Q4FY21.
• Reduction in Profitability: In Q4FY21, ROKU's net income dropped to USD 23.69 million from USD 67.31 million in Q4FY20.
• Cash and Debt Position: The company had USD 2.15 billion in cash and cash equivalents as of December 31, 2021, and total debt of USD 89.87 million.

Key Risk:

• Seasonality Risk: ROKU's sales and gross profit are often highest in the fourth quarter of each fiscal year, accounting for a large portion 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 failure in planned fourth-quarter sales, whether due to reduced promotional efficacy, supply chain interruptions, or other circumstances, would significantly impact its full-year results.

Outlook:

• Q1FY22 Outlook: ROKU forecasts to generate revenue of USD 720 million in Q1FY22, representing a YoY growth of 25%, along with a gross profit and EBITDA of ~USD 360 million and ~USD 55 million, respectively. It also anticipates net loss to the tune of USD 30 million in Q1FY22.

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 share price has fallen 32.63% in the past month and is currently leaning towards lower-end of its 52-week range of USD 139.47 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 123.94.

Considering the significant correction in the stock price over a span of month, strong balance sheet, high liquidity, geographical expansion, and current valuation, we recommend a " Hold" rating on the stock at the current price of USD 111.8897, down 22.68% as of February 18, 2022, 10:06 PM ET, however we will be revisiting the stock in next 2-3 weeks.

Three-Year Technical Price Chart (as on February 18, 2022, at 10:06 AM ET). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.