Shares of Roku (ROKU) are under pressure on Thursday after the company reported quarterly results. While earnings per share and revenue beat consensus expectations, the company also reported a slowdown in streaming viewership and tight hardware margins. Following the news, Stephen analyst Nicholas Zangler upgraded the stock to Overweight and recommended investors buy any dip in the stock based on the active accounts miss. On the flip side, Morgan Stanley analyst Benjamin Swinburne cut Roku's price target to $310 and kept a Sell-equivalent rating on the shares as he remains bearish on the name.
RESULTS: Roku reported second quarter earnings per share of 52c and revenue of $645.1M, both better than the expected 12c and $618.54M, respectively. The company said that second quarter Platform revenue increased 117% year-over-year to $532M, and active accounts reached 55.1M, an increase of 1.5M active accounts from the first quarter of 2021. However, Roku reported Streaming hours at 17.4B hours, a decrease of 1.0 billion hours from the first quarter of 2021. Additionally, the company said Average Revenue Per User, or ARPU, grew to $36.46, up 46% year-over-year and versus $32.14 in the first quarter.
For the third quarter, Roku sees revenue between $675M-$685M, with consensus at $645M, and adjusted EBITDA of $60M-$70M. The company stated that in the near-term, "the varying rates of recovery from the pandemic around the world continue to present an uncertain operating environment." Roku added: "Within the Player segment, we expect global supply chain constraints and component cost increases to worsen in the second half of 2021, leading to increasing negative player gross margin. We believe these industry supply chain constraints and cost increases for streaming players and TV OEM partners will continue into 2022. Within the Platform segment, monetization remains strong, and while there will be a slowdown in year-over-year growth relative to last year's pandemic-driven acceleration, we expect continued significant growth in the second half of the year."
BUY ANY DIP: Following quarterly results, Stephens analyst Nicholas Zangler upgraded Roku to Overweight from Equal Weight with a price target of $475, up from $400, as he took over coverage of the stock. Roku "handily beat" expectations for revenue, ARPU, gross profit, adjusted EBITDA and net income in the second quarter, but investors' "hyperfocus" on a miss in active account growth and streaming hours could potentially pressure the stock, Zangler contended. His thesis is that all linear TV ad spend will shift to connected TV, driving connected TV ad spend to $72B over time from $9B currently, said the analyst, who would be "buying any dip" in the stock based on the active accounts miss.
Meanwhile, DA Davidson analyst Tom Forte raised the firm's price target on Roku to $600 from $560 and kept a Buy rating on the shares. The analyst sees the stock decline as a "market overreaction" to a 4.9% sequential decrease in video consumption, noting that the metric is consistent with the reopening of the economy. Further, Forte stated that he is not "overly concerned" about the implications for Roku. The analyst recommended that investors take advantage of the pullback as he remains positive on Roku's ability to exploit the transition in advertising spending to connected TV/advertising video on demand and away from linear TV.
Voicing a similar opinion, Benchmark analyst Daniel Kurnos called any pullback post-earnings a "unique buying opportunity." The analyst said that Roku reported "a fantastic Q2 print that came up short in 2 key areas," namely active account net ads and streaming hours. While he had previously pointed out that expectations were "extremely elevated," he continues to think Roku looks to be extremely well positioned in the back half of the year and that structural tailwind appears to be intact on a two-year stack. Kurnos has a Buy rating and $550 price target on Roku shares.
COVID COMPS SHIFTING TO A HEADWIND: Still bearish on the stock, Morgan Stanley analyst Benjamin Swinburne lowered the firm's price target on Roku to $310 from $325, while keeping an Underweight rating on the shares. While the company's second quarter results and third quarter guidance were "solid," COVID comps are shifting "markedly from a tailwind to a headwind" and the stock remains "priced for perfection as growth peaks," Swinburne argued. With active account and revenue growth likely to decelerate, the analyst expects the multiple to compress.
'HOTLY DEBATED STORY': Keeping an Overweight rating on the shares, Wells Fargo analyst Steven Cahall lowered the firm's price target on Roku to $488 from $519. The analyst expects Roku to be "a hotly debated story" in the medium-term. Account growth and streaming hours are likely decelerating for a variety of reasons, including reopening and perhaps penetration, Cahall noted. However, the analyst argued that ARPU growth continues to impress, with upside in hours per account per day, monetization per hour, CPMs, and ultimately profits. Cahall thinks the ARPU story will win the day hence his continued bullish stance.
PRICE ACTION: In Thursday morning trading, shares of Roku have dropped about 5% to $399.92.
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Roku
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