Roku, Inc.

ROKU Details

Roku, Inc. (NASDAQ: ROKU) is a television streaming platform based in the United States. The company's website allows users to discover and access a wide variety of movies and TV episodes and live sports, music, news, and other content. Platform revenue is generated through advertising, content distribution, audience building, and billing services, whereas player revenue is generated by selling streaming players and audio items.

Latest News:

• Collaboration with Sound Hub: On February 23, 2022, ROKU and Sound Hub Denmark today announced Roku's membership and participation in Sound Hub Denmark, a world-class sound and acoustics growth hub dedicated to fostering audio innovation. Roku's audio and acoustics teams in Denmark will provide coaching and mentoring and present on topics related to home theatre and audio at Sound Hub Denmark events, alongside other members such as Bang & Olufsen, Harman and Dynaudio.

Q4FY21 Results:

• Solid Topline Performance : The company reported YoY growth of 33.15% in total net revenue to USD 865.33 million in Q4FY21 (ended December 31, 2021) from USD 649.89 million in Q4FY20. The surge in topline is attributable to massive growth in Active Accounts, which stood at 60.1 million in Q4FY21 vs. 51.2 million in Q4FY20, complemented by an increase in Average Revenue Per User (ARPU) from USD 28.76 in Q4FY20 to USD 41.03 in Q4FY21.
• Reduction in Profitability: In Q4FY21, ROKU's net income dropped to USD 23.69 million from USD 67.31 million in Q4FY20.
• Cash and Debt Position: The company had USD 2.15 billion in cash and cash equivalents as of December 31, 2021, and total debt of USD 89.87 million.

Key Risk:

• Seasonality Risk: Due to more lavish consumer spending and more advertising during the holiday seasons, ROKU's sales and gross profit are often highest in the fourth quarter of each fiscal year, accounting for a large portion of the overall net revenue for that fiscal year. As a result, any failure in fourth-quarter sales, whether due to lower promotional effectiveness, supply chain disruptions, or other factors, would significantly impact the company's full-year results.

Outlook:

• Q1FY22 Outlook: In Q1FY22, ROKU expects revenue of USD 720 million, a 25% increase YoY, and gross profit and EBITDA of USD 360 million and USD 55 million, respectively. In addition, it also expects a net loss of USD 30 million in Q1FY22.
  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

ROKU's stock price has fallen 67.18% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 97.91 to USD 490.76. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 140.58.

Considering the significant correction in the stock price, strong balance sheet, high liquidity, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 115.61, up 0.61% as of March 17, 2022, at 11:14 AM ET.

Three-Year Technical Price Chart (as on March 17, 2022, at 11:14 AM ET). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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