2022 will be a year to forget for former high-flying growth stocks. The list of fallen tech names is long and illustrious, and you can certainly place Roku (ROKU) amongst the big losers. With Q3 earnings at the gate (today following the market’s close), the shares sit a miserable 75% into the red on a year-to-date basis.
The difficult macro backdrop comes hand-in-hand with numerous near-term challenges. According to Wedbush analyst Michael Pachter, these include lowered advertising spend, and inflationary pressure affecting smart TV sales which ultimately stunts the growth of active accounts.
At the same time, banking on future growth, the company is still in heavy investing mode, which makes for “unpalatable results for investors” in the current growth restricted climate.
However, for those taking the long-term view, Pachter lays out the bullish case.
“Looking ahead beyond macroeconomic headwinds, we expect Roku’s user base to continue to grow globally, with expanding premium ad-supported content, and superior targeting capabilities that make Roku a compelling outlet for brand advertisers,” the analyst said. “Once macroeconomic trends improve, we think there is still significant runway ahead for shifting ad dollars from linear TV to digital, and Roku is poised to take a meaningful and growing share of this shift.”
Back to the here and now, for Q3, Pachter is looking for the company to deliver revenue of $700, the same as Roku’s guide and just a touch above consensus at $696 million. On the profitability front, Pachter is calling for EPS of $(1.39) while the Street has $(1.28).
As for Q4, Pachter has lowered his estimates, due to “continued softness in the scatter market,” – the ad slots sold nearer to the time programs are meant to air as opposed to those bought upfront – and as such, considers the stock as “likely dead money over the next two quarters at least.” Once the scatter market “normalizes,” however, Pachter expects a bounce back within the next year.
All told, then, Pachter sticks with an Outperform (i.e., Buy) rating although his price target is reduced from $85 to $75. The implication for investors? Potential upside of 34% from current levels. (To watch Pachter’s track record, click here)
Turning now to the rest of the Street, where Roku gets mixed reviews. Based on 7 Buys, 4 Sells and 2 Holds, the analyst consensus rated the stock a Hold (i.e. Neutral). However, over the next 12 months, the shares are expected to appreciate by 44% given the average price target currently stands at $80.5.
It will be interesting to see whether the analysts upgrade their ratings or cut price targets after the earnings release today. (See Roku stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
