Ad-supported subscriber-level optimism at Netflix Inc. recently increased its stake in the video streaming company.
Optimistic about ad-supported subscribers at Netflix Inc. recently lifted the video streaming company’s stock to a multi-year low, but that hasn’t translated into Roku Inc.
Shares in the platform for streaming services on Friday closed at their lowest level since February 2019 and have lost more than three-quarters of their value since the start of 2022, the 12th steepest drop in the Index. number of Russell 1000. While Netflix is up 36% since the market’s mid-June low, Roku has lost about the same amount since.
Roku stock rose 4.7% on Monday, joining a broad rally for the stock. Netflix shares rose 3.1%.
Netflix, which reported third-quarter results on Tuesday, said last week it will charge subscribers $7 a month for its new ad-supported product, starting November 3. company, without ads, costs $15.49 a month in the US. The move will give Netflix a new influx of paid subscribers, plus a revenue stream that is advertising it previously shunned.
Roku devices allow users to manage streaming services like Netflix and Hulu. The company sells ads to its own Roku Channel and splits some of its inventory with other services. Still, even as Netflix accelerates its move to streaming as a destination for marketers, investors remain skeptical that it will be a meaningful catalyst for Roku.
“There was an idea that Roku could go down the road and see growth from the Netflix ads, but there was an idea that Roku could go down the road and see growth from the Netflix ads,” said Jim Worden, chief investment officer at Wealth Consulting Group, which owns Netflix and Walt. I don’t think this will affect them much. Disney Co but finds the difficulties facing Roku too harsh to make the stock attractive.
“Although it is trading well below initial levels, it is not a big buy. This is a tough market for any advertiser, and Roku faces significant challenges at a time when the environment has become much tougher for unprofitable stocks. “
The outlook for the highly cyclical advertising market has weakened with economya factor that has contributed to the decline of larger players such as Alphabet Inc. and Meta . Platform Inc. Last quarter, Roku cited a slowdown in television advertising when making revenue forecasts caused the biggest drop in stock history.
It has also struggled as the Federal Reserve raised interest rates to fight inflation, a shift from accommodative policies that has led to a frenzy in high-growth stocks during the period. pandemic. Roku’s valuation jumped from a peak above $60 billion to $6.8 billion as investors sold unprofitable shares in favor of cheap or dividend-paying companies. Roku ended Friday with a triple-digit multiple of forward earnings, albeit with estimated sales of 1.9 times, compared with a five-year average of 8.7.
Brian Frank, chief investment officer at Frank Funds, said: “The rate has become too attractive to take on risk on a name like this, which may not be profitable for years and years to come. ” said Brian Frank, chief investment officer of Frank Funds. “Roku doesn’t have it business trade in the old position and if you think it will return to that level any time soon, I think you will be pleasantly surprised. “
Love has turned sour. Analysts estimate Roku will post a loss of $3.06 a share this year, more than double what was expected in three months. Consensus on revenue fell 15% year-over-year.
However, Roku continues to have a high fan base in Cathie Wood. Her ARK Investment Management is the second-largest holder of Roku stock, after Vanguard, with the company holding 8.4% of the outstanding shares.
According to the company’s most recent research, ARK believes that Roku the stock could hit $605 in the next five years; it closed below $50 on Friday.
“Video ad revenue is likely to be the most significant contributor to the company’s growth over the next five years,” it wrote, estimating that Roku’s revenue will grow 39% at an annual rate. to reach $14 billion by 2026.
