On Roku’s (ROKU) August Q2 earnings call, the company warned that a lack of materials and some logistical constraints were expected to play their part over the next several quarters.
Accordingly, ahead of the streaming giant’s Q3 earnings tomorrow, Wedbush’s Michael Pachter thinks the component shortages and supply chain bottlenecks will affect the top-line. As Pachter puts it, “Licensed TVs waiting at ports cannot drive user growth until they are delivered.”
However, luckily for a company faced with such a macro headwind, Roku has a counter tailwind blowing at its back. “We think that to a large extent, advertising growth will offset the negative effect of supply chain issues on Roku’s revenue,” the analyst went on to add.
This an evolving story, as advertisers continue their “migration” from linear to CTV (connected TV). With a dominant market share (according to eMarketer, almost 50% share of connected TV users), a “rapidly growing user base, and superior targeting capabilities,” Roku will continue to benefit from this secular trend.
Furthermore, in the near-term, due to IDFA headwinds, Pachter expects advertisers to move away from mostly mobile platforms/social media. As Roku is able to reach a similar audience digitally with “advanced targeting,” it stands to benefit from this development too.
Nevertheless, the supply issues result in Pachter slightly lowering Q3’s revenue estimate from $690 million to $685 million, which is still above consensus at $684 million, and right at the high end of Roku’s guidance of $675 – 685 million; the analyst also reduced the EPS forecast from $0.08 to $0.05, which is now just below the Street’s call for $0.06.
There’s also a new price target; the figure drops from $475 to $415, which still suggests shares will appreciate by 36% over the coming months. Pachter’s rating stays an Outperform (i.e, Buy) and the analyst still sees Roku as a “growth story with plenty of runway ahead.” (To watch Pachter’s track record, click here)
On Wall Street, most agree with the Wedbush analyst’s take; the stock has a Strong Buy consensus rating, based on 13 Buys vs. 2 Holds and 1 Sell. The experts believe the shares have room for 50% growth, given the average price target clocks in at $458.21. (See Roku stock analysis 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.
