Roku (NASDAQ:ROKU)
Roku (NASDAQ:ROKU) stock was up 15.3% at the outset of trading on Thursday after the company reported results above Wall Street’s forecasts for the quarter ending in December. The company also provided an optimistic outlook for the first quarter, which it claims would put it on the road to profitability. As a result, Roku stock surged.
Company projections for the first quarter are $700 million in sales and $310 million in gross profit, which is above expectations but still down by 15% from the same period last year.
The firm also reported a decline in adjusted profits before interest, taxes, depreciation, and amortization to $95.2 million. It expects that figure to increase to $110 million by the first quarter of 2023.
During the results conference, CFO Steve Louden noted that Roku’s guiding philosophy hasn’t shifted but that “what’s changed since Q2 of last year is simply the degree of uncertainty in the macro climate, and obviously, the effect it has on consumers as well as the advertising industry.”
Kodi’s head of media, Charlie Collier, said “The advertising industry had a good fourth quarter as far as numbers go. Even still, Roku did better than total ad expenditure and by much more conventional TV ad spending. Thus, Roku’s market share growth has not slowed.”
He expressed his “pleasedness” with the growth of advertising in areas including food and beverage, tourism, consumer goods, and healthcare.
The Christmas season was generally lackluster, but analysts still observed some sales growth. Opinions on profitability ranged from “glass half-full” to “half-empty” on the need for cost-cutting. Roku committed to lowering its operational costs after a 71% increase in its fourth-quarter operating expenditures pushed it into the red.
After “investor confidence returned,” Atlantic Equities changed its stance on Roku stock from Negative to Neutral. Analyst Hamilton Faber noted that the revenue from the first quarter suggests some regular seasonality and that the longer-term outlook suggests space for growth.
The firm anticipates opex growth to slow from 40% in Q1 to single digits in Q4 as part of a return to positive EBITDA in 2024. Taken together, these projections suggest an increase in opex of 15% in both 2023 and 2024, as Faber put it. To compare with Roku’s early Thursday price of $73.13, he increased his price objective to $76 from $40.
As compared to other companies, ours was already rather optimistic. Citi gave the stock a Buy recommendation and said that the company’s expense-growth projections provided a path toward positive EBITDA.
D.A. Davidson, citing “encouragement” from “better-than-expected sales and earnings for 4Q22 and the stronger-than-projected 1Q23 sales forecast,” has raised its price objective for the Roku stock from $70 to $80 (now suggesting a further 9%).
Featured Image: Reuters © Tiyashi Datta
