Roku Stock Jumps After Q3 Earnings Beat Estimates, Analyst Upgrade

Valued at $9.9 billion by market cap, Roku Inc. (ROKU) is a digital streaming service provider that serves its users in two categories: Platform and Devices.

Streaming service provider Roku (NASDAQ:ROKU) stock cratered 17% in a single day after earnings on Oct. 31. Despite the steep decline, Baird analysts upgraded the stock from “Neutral” to “Outperform,” suggesting that the Q3 reaction was slightly overdone.

What Happened?

ROKU stock initially surged 6% in extended trading after the company posted a narrower-than-expected loss in Q3. However, the stock quickly reversed course and plummeted after Roku's guidance for Q4 fell short of Wall Street's expectations.

The streaming giant reported a loss of $9 million, or $0.06 per share, in Q3, narrower than analysts' estimates for a loss of $0.35 per share. Roku also reported revenue of $1.06 billion during the quarter, against estimates of $1.02 billion.

EBITDA reached $98.2 million, compared to analysts' estimates of $47.33 million, while its EBITDA margin also shot up to 9.2% from last year’s 4.8%. However, gross margin dipped to 45.2% from 47.7% reported in the same quarter last year.

On the other hand, Roku ended Q3 with a cash reserve of $2.12 billion, up from last year’s 2.02 billion.

Now What

ROKU stock, the No. 3 holding in Cathie Wood's flagship Ark Innovation Fund (NYSE:ARKK), has had a turbulent year, declining 24.5% on a year-to-date basis. However, the ARKK favorite is already up more than 43% from its August lows, suggesting the bottom may be in for now.

notably, ROKU stock now trades at a price-to-sales multiple of 3.6x, which is significantly lower than its average multiple of 9.6x over the past five years. The stock also trades at a price-to-earnings multiple of 236x, which is very high compared to the S&P 500 average multiple of 20.8x.

Overall, analysts are still positive on ROKU stock, with a “Moderate Buy” consensus rating among the 25 in coverage. The mean price target of $81.28 suggests that ROKU could rise another 17.5% from Friday's close, while Baird's newly raised price target of $90 suggests an upside potential of 30%.