Roku Inc. (NASDAQ: ROKU) released its Q4 2021 earnings and revenue report on Thursday, February 17, 2022, with earnings topping estimates while revenue came short of estimates.
What to look for: During the fourth quarter, revenue missed expectations, and management warned of continued supply chain challenges. As a result, TV unit sales dropped below pre-pandemic levels just like in the third quarter. In addition, some of the company's TV OEM partners experienced inventory challenges which affected units sales and market share in the fourth quarter. Although these market conditions are likely to result in high player-related costs in the short term, management doesn't see these conditions being permanent.
Earnings: Stockearning’s Estimated EPS was pegged at $0.05, but the company reported EPS of $0.17 per share. In the third quarter, the company produced an earnings surprise of 700% with an EPS of $0.48. Historical EPS Performance for the past 12 quarters indicates that the company has topped estimates 16 times (94%) and missed once (5%).
Revenue: Revenue was up 33% in the fourth quarter compared to 51% in the third quarter and 81% in the second quarter. The company had revenue of $865.3 million compared to $894 million predicted by analysts. For the first quarter, the company expects revenue of $720 million, implying a 25% revenue growth. As a result, the company is calling for an adjusted EBITDA of $55 million below analysts’ estimates. For fiscal 2022 the company anticipates revenue to grow in the mid-30’s percentage range.
Stock movement: ROKU shares have dropped 48.5% since its last quarter earnings. Interestingly, the company's shares have been DOWN 9 times out of the last 17 quarters following the earnings release. So, the historical price reaction suggests a 53% probability of the share price going DOWN following the fiscal Q4 2021 earnings release. According to the Stockearning algorithm, the predicted volatility on the first day is +/-13%, while the predicted volatility on the seventh day is +/-15%.
What analysts are saying: Pivotal Research analyst Jeffrey Wlodarczak downgraded ROKU from Hold to Sell and slashed the price target from $350 to $95. In a research note, Wlodarczak says the company had an "overall mixed" Q4 because it released a lower-than-expected revenue forecast for 2022 and opted to "massively ramp" operational costs, which pushed EBITDA guidance considerably below expectations. In essence, Roku will increase revenue at a slower pace than predicted, along with a large increase in expenses, perhaps leading to a worldwide economic slowdown and increased competition, according to the analyst.
Wedbush analyst Michael Pachter slashed his price target from $365 to $220 as he revises valuation on the post-pandemic decline while maintaining a Buy rating in the stock. According to the analyst, Roku did a "phenomenal job" expanding its customer base throughout the epidemic and has boosted revenue per user enough for it to be profitable.
However, according to Pachter, active user account growth "significantly slowed" in the 2H 2021 as Roku's TV OEM suppliers struggled to deliver TVs to market because to supply chain disruptions and component shortages, as well as customers spending more time outside the home as lockdowns got lifted. Nonetheless, he believes that once the supply chain disruptions subside, probably in early to mid-2022, subscriber growth will pick up again, accompanied by OEM and store discounts.
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