Roku Stuck In Neutral After Second Quarter Bounce

Roku Inc. (ROKU) is the global leader in the rapidly-growing connected TV market (CTV), boasting an installed base of 43 million customers. Wall Street analysts expect the company, which has traded publicly for less than three years, to grow at an annual 30%+ rate in the next one to three years, underpinned by ad spending that may double from the current $8 billion. This volatile growth play could benefit from this revenue expansion and trade well above current price levels in coming years.

Roku Expects To Lose Money Until 2021

Even so, Roku sold off on August 5th despite beating Q2 2020 profit and revenue estimates by wide margins. Shareholders, who have suffered through an endless string of losses since the 2017 IPO, walked away after the company said it expects to lose money through year’s end. The stock currently sports a market cap of $18.28 billion and the COVID-19 pandemic has lowered advertising revenue because many small businesses have been forced to cut back.

Deutsche Bank analyst Jeffrey Rand just issued a ‘Buy’ call with a $185 target, proclaiming the company is “the market leader in the CTV market, with close to 50% market share of global CTV streaming hours, and is seeing strong growth opportunities as more consumers and advertisers spend time and money on streaming content. It’s done an impressive job building out the largest installed base in the industry and monetizing it through its Platform business.”

Wall Street And Technical Outlook

Wall Street consensus currently rates Roku as a ’Moderate Buy’ based upon 10 ‘Buy’, 6 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $65 to a street-high $208 while the stock is now trading more than $13 below the median $160 target. There’s plenty of potential upside in this placement but prospective investors may wish to sit on their hands until a positive catalyst shows up on the newswire.

Roku posted an all-time high at 176.55 in September 2018 and sold off to an 11-month low in March 2020. A two-legged recovery rally stalled 10 points under the prior high in July, giving way to a trading range with support near 144. The stock has been testing range support for the last two weeks, setting the stage for a bounce that could eventually reach the 2018 high, or a breakdown that targets the psychological 100 level.