Streaming company Roku is seeing shares having their best day in years. It plans to rein in expense growth in 2023.
Tiffany Hagler-Geard/Bloomberg
Roku
stock is on track for on of its best days in years after the streaming firm reported better-than-expected results, and disclosed plans to rein in expense growth in 2023.
Roku
stock (ticker: ROKU) is up 19% to $75.80 in Thursday trading. That would be Roku stock’s highest close since Aug. 18, and its largest percent increase since Aug. 8, 2019, when it rose 20.9%. The stock has surged 38% in the past four days. The stock is up 86% year to date, but down 48% in the past 12 months.
Aside from topping sales and net-loss estimates, Roku expects year-over-year expense growth to fall to a single-digit percentage by the fourth quarter from 40% in the first quarter. That outlook comes as investors are focusing on profitability over growth at all costs, while interest rates continue to rise. Higher long-term rates effectively make future profits less valuable.
Evercore ISI analyst Shweta Khajuria, who rates Roku stock at In Line with an $80 target price, titled her post-earnings note, “The Beginning of Belt Tightening.” Khajuria said the results topped expectations despite a challenging macroeconomic backdrop, and the slowdown in operating expenses growth and plans for positive earnings before interest, taxes, depreciation, and amortization by 2024 were positive developments.
“We downgraded Roku shares in July last year [to In Line from Outperform] with the thesis that the business wasn’t broken in our view,” Khajuria wrote, “but the macro headwinds were just too severe for the company, with no near-to-midterm catalyst and ongoing elevated levels” of operating expenses. Those expenses are being addressed, but the lack of a catalyst “remains a headwind.” Still, the analyst is “incrementally constructive” from the sidelines.
Rosenblatt Securities analyst Barton Crockett titled his note “In 4Q22, the Ad Armageddon Wasn’t As Bad As Feared.” He maintained a Neutral rating but raised his price target to $76 from $44. He thinks the firm can return to revenue growth as year over year comparisons ease in the coming quarters.
Rosenblatt Securities analyst Barton Crockett maintained a Neutral rating on Roku stock, but raised his price target to $76 from $44. He thinks the firm can return to revenue growth as year-over-year comparisons ease in the coming quarters. When that’s combined with muted cost growth, Crockett has “a more constructive long-term view,” and assumes Roku “can hit its newly articulated goal to reattain Ebitda profitability in 2024.”
The report was even enough to earn Roku stock an upgrade from Atlantic Equities analyst Hamilton Faber, who moved to Neutral from Underweight, and raised his price target to $76 from $40.
“With advertising expectations no longer being tilted lower, some confidence is coming back into this volatile stock,” Faber wrote, adding that the target is based on a three times forward price-to-sales ratio.
Write to Connor Smith at connor.smith@barrons.com
Credit: marketwatch.com