Roku, Inc.

ROKU Details

Roku, Inc. (NASDAQ: ROKU) is a TV streaming platform in the United States. Users can discover and access a vast range of movies and TV episodes and live sports, music, news, and more through the company's website. It generates its platform revenue through Advertising, content distribution, audience building, and billing services whereas, player revenue comes from selling streaming players and audio products.

Latest News:

• Recent Launches: On November 15, 2021, ROKU launched the Roku LE streaming player, including the easy-to-use Roku OS, limitless high-definition entertainment, and all streaming devices in one box for just USD 15 to be offered exclusively at Walmart for Black Friday. It has also slashed the prices of its other products and has provided USD 0.99 premium subscriptions on the Roku Channel, as well as HBO Max and Redbox deals.
• Integrating DCR: On October 26, 2021, Roku and Nielsen, a global leader in audience measurement, data, and analytics, stated that publishers would be able to use Nielsen Digital Content Ratings (DCR) to assess channel content on Roku devices. DCR offers Roku channels with deduplicated reach and demographic analytics, enabling users to identify which content reaches the right audiences.

Q3FY21 Results:

• Surge in Topline: The company reported YoY growth of 50.54% in total net revenue to USD 679.95 million in Q3FY21 (ended September 30, 2021) from USD 451.66 million in Q3FY20.
• Expansion in Profitability: Net income for Q3FY21 rose 432.44% YoY and stood at USD 68.94 million vs. USD 12.95 million in Q3FY20.
• Cash and Debt Position: As of September 30, 2021, the company's cash balance stood at USD 2.18 billion, with a total debt of USD 91.09 million.
• Improvement in ARPU: ROKU's average revenue per user (ARPU) increased to USD 40.10 as of September 30, 2021, up from USD 27.00 as of September 30, 2020.

Key Risks:

• Operates in a Seasonal Industry: ROKU's sales and gross profit are often highest in the fourth quarter of each fiscal year, accounting for a significant portion of the overall net revenue for that fiscal year, due to more lavish consumer spending and more advertising during the holiday seasons. As a result, any failure in planned fourth-quarter sales, whether due to reduced promotional efficacy, supply chain interruptions, or other circumstances, could harm its full-year results.

Outlook:

• Q4FY21 Outlook: For Q4FY21, ROKU expects to clock revenue in the range of USD 885-900 million, along with a total gross profit ranging between USD 380-390 million.

Q4FY21 Guidance (Source: Q3FY21 Shareholder Letter, November 03, 2021)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ROKU Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

ROKU share price has fallen 44.83% in the past nine months and is leaning towards the lower end of its 52-week range of USD 223.33 to USD 490.76. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 21.43. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 269.75.

Considering the significant correction in the stock price in the past nine months, strong balance sheet, high profitability margins, recent launches, and current valuation, we recommend a " Buy" rating on the stock at the current price of USD 228.17, up 0.93% as of November 24, 2021, 11:09 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.  

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