Roku's (ROKU) first-quarter and second-quarter sales were better than estimated, with total revenue up 19% and 14% year-over-year, respectively. It's also delivered better-than-expected earnings, including a loss of 24 cents in Q2 that was far better than the 42-cent loss that was expected.
Yet Roku's stock price is down over 40% year to date, compared to Netflix's 27% gain.
Related: Analysts say buy the dip in Netflix stock, here’s why
Roku began in 2002 as a streaming device maker and released its first set-top box in 2008. Now it profits little from its media players and relies more heavily on ad sales, a revenue stream facing increased uncertainty amid recession fears.
Roku’s revenue comes from two segments: Platform and Devices.
Devices revenue of $143 million accounted for less than 15% of total revenue in Q2, and it reported a loss of $15.2 million. However, Device sales were up 39% from one year ago because of increased distribution of Roku-branded televisions.
The Platform sector, accounting for 85% of Roku’s total revenue, generated $824 million in revenue in the June quarter, an 11% year-over-year increase driven by streaming service distribution and advertising activities.
CFO Dan Jedda said Roku faced a “challenging year-over-year growth rate comparison within streaming services distribution” and anticipates that media and entertainment will continue to face challenges. However, the company expects advertising activities to accelerate in the third quarter.
The quarterly performance has led analysts to reset their Roku stock price targets.
Cathie Wood’s big buy in 2024
Known for investing in disruptive technologies, Cathie Wood has been actively purchasing Roku stock.
In June, she bought Roku shares five times, acquiring 454,700 shares. Since the start of 2024, Wood has purchased Roku stock at least 12 times, adding over 1.8 million shares.
Related: Cathie Wood Watch: Ark Resumes Roku Purchases
Roku is the second-largest holding in Wood’s flagship Ark Innovation ETF, (ARKK) , representing 9.2% of assets as of June 30. In the first half of 2024, ARKK’s net asset value lost 16.1%.
In 2022, Ark projected that Roku’s active accounts would reach 157 million by 2026 and the share price would hit $605. Roku shares are now trading around $52, and as of June 30, it had 83.6 million streaming households.
Analysts lower Roku stock price targets
At least four analysts have lowered their price target on Roku stock after its Q2 earnings.
Pivotal Research analyst Jeffrey Wlodarczak lowered Roku’s price target to $65 from $75 and kept a Hold rating on the shares.
The analyst tells investors that the company’s Q2 report was consistent with expectations despite ongoing challenges in media and entertainment, a temporary oversupply of industry streaming ad inventory, and an increasingly mixed economic environment.
More Wall Street Analysts:
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Macquarie analyst Tim Nollen lowered Roku's price target to $72 from $88 and kept an Outperform rating. He also lowered Roku’s EBITDA forecast for 2025 to $241M from $287M as it is “modeling a more gradual growth pick up in Platform as the ad business diversifies.”
JPMorgan analyst Cory Carpenter also lowered the price target on Roku to $80 from $90 and keeps an Overweight rating. The analyst sees the earnings as "better than feared results" but believes "the narrative could flip more materially next quarter" as Roku demonstrates its upward growth trajectory.
Related: Veteran fund manager sees world of pain coming for stocks
