What Happened?
Shares of streaming TV platform Roku (NASDAQ: ROKU) fell 5% in the afternoon session after the major indices declined (Nasdaq down 2%, S&P down 1.5%) as yields soared amid growing uncertainty about the future pace of rate cuts. Adding to the market's concern is the upcoming November 2024 presidential election, with investors still trying to figure out the potential policy direction under the next administration. Additionally, the earnings season is contributing to heightened volatility, with investors still processing weak quarterly updates from Starbucks and Boeing.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks, such as those in the technology sector, where the current value depends more on cash flows many years out in the future.
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? Access our full analysis report here, it’s free.
What The Market Is Telling Us
Roku’s shares are very volatile and have had 21 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 8 months 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 the 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.
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 18.2% since the beginning of the year, and at $72.82 per share, it is trading 31.9% 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 $565.55.
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