Stock Story -
What Happened: Shares of streaming TV platform Roku (NASDAQ: NASDAQ:ROKU) fell 7.4% in the morning session after equities pulled back, with market participants likely taking profits ahead of a big earnings week. Tech stocks led the decline, with the Nasdaq index down 1% while the SP 500 fell 0.5%. Some of the notable stocks reporting earnings during the week include Walmart (NYSE:NYSE:WMT), Booking Holdings (NASDAQ:BKNG), and Nvidia (NASDAQ:NVDA).
Stocks have had a good run since the fourth quarter of 2023 as markets expect the Fed to begin cutting rates as early as the first half of 2024 amidst cooling inflation data. The market's momentum continued into the early weeks of 2024 following solid earnings results from big tech names, including Meta (NASDAQ:META), Amazon (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT).
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Roku? Find out by reading the original article on StockStory.
What is the market telling us: Roku's shares are very volatile and over the last year have had 32 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 4 days ago, when the stock dropped 22.3% on the news that the company reported fourth-quarter results and provided slightly underwhelming outlook for the coming quarters. The company lacked specificity that the market craves when discussing its full-year 2024 EBITDA forecast (it stated that EBITDA would be "positive" rather than sharing a number - Wall Street was expecting $100 million of EBITDA for 2024). Management cited challenging macroeconomic conditions and an uneven ad market recovery, and they anticipate seasonal revenue declines in line with Q1 2023, alongside tough year-over-year growth rate comparisons in streaming services distribution and a challenging media and entertainment landscape. Additionally, the company has averaged 8% upside to Wall Street's revenue estimates since Q3 2022, so Roku's more modest beat this quarter may be causing investors to level set with regards to expectations.
On a more positive note, Roku beat analysts' revenue expectations as it grew its user base and outperformed in its Platform and Devices segments. Its revenue guidance for next quarter also topped analysts' expectations. Overall, this quarter's results seemed mixed, but the market was likely expecting more.
Roku is down 24.2% since the beginning of the year, and at $67.48 per share it is trading 36.9% below its 52-week high of $106.87 from November 2023. Investors who bought $1,000 worth of Roku's shares 5 years ago would now be looking at an investment worth $1,258.