Roku, Inc.

ROKU Details

Roku, Inc. (NASDAQ: ROKU) is the most popular TV streaming platform in the United States, according to the number of hours streamed. Users may discover and access an extensive range of movies and TV episodes and live sports, music, news, and more using its platform. Platform income is generated through advertising, content distribution, audience development, and billing services, while player revenue is generated from the sale of streaming players and audio products.

Latest News:

• Integration of DCR: Roku and Nielsen, a global leader in audience measurement, data, and analytics, announced on October 26, 2021, that beginning in October 2021, publishers would be able to measure channel content on Roku devices using Nielsen Digital Content Ratings (DCR). Digital Content Ratings allows access to deduplicated reach and demographic data for Roku channels, so one can figure out which shows are reaching the right people.
• Partnership with SEMP TCL: SEMP TCL, a pioneer electronics business in Brazil, established cooperation with ROKU on September 30, 2021. TCL will expand its worldwide relationship with Roku to introduce TCL Roku TV models to Brazil later this year and a brand-new portfolio of SEMP Roku TV models the following week as part of the deal.

H1FY21 Results:

• Robust increase in Topline: Due to more substantial advertising revenues, content distribution, and associated transactional revenues, total net revenues climbed by 80.15% YoY to USD 1.22 billion during H1FY21 (ended June 30, 2021) compared to USD 0.68 billion during H1FY20.
• Expansion in Net Income: Its net income increased to USD 149.76 million during H1FY21, compared to a net loss of USD 97.76 million during H1FY20.
• Robust Balance Sheet: The company's cash and cash equivalents were USD 2.08 billion as of June 30, 2021, with a total debt of USD 92.31 million.
• Boost in ARPU: ROKU's average revenue per user (ARPU) increased to USD 36.46 as of June 30, 2021, up from USD 24.92 as of June 30, 2020.

Key Risks:

• Seasonal Risk: ROKU's sales and gross profit are often most remarkable in the fourth quarter of each fiscal year, accounting for a substantial portion of the overall net income for that fiscal year due to more lavish consumer spending and more advertising during the holiday seasons. Any failure in planned fourth-quarter sales, whether due to a decrease in the efficacy of its promotional activities, supply chain interruptions, or any other circumstance, would significantly impact its full-year performance.
• Reliance on third-party suppliers: Third-party component providers provide certain functionalities required for the operation and usage of the company's products. As a result, any disruption in the company's relationship with suppliers might significantly impact its ability to distribute product quantities, which could harm its financials.

Outlook:

• Revenue and Gross Profit Estimates: As of the shareholders' letter dated August 04, 2021, ROKU estimates its Q3FY21 total net revenues and gross profit to range between USD 675-685 million and USD 315-325 million, respectively.
• Net Income and EBITDA Estimates: It also expects its Q3FY21 net income to be in the band of USD (3.0)-7.0 million, with adjusted EBITDA in the range of USD 60-70 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ROKU Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

ROKU share price has fallen 29.67% in the past three months and is leaning towards the mid-band of the 52-week range of USD 196.52 to USD 490.76. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 46.50. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 390.20.

Considering the correction in the stock price in the past three months, strong balance sheet, high profitability margins, recent partnerships, and current valuation, we recommend a " Buy" rating on the stock at the current price of USD 322.92, down 0.08% as of October 26, 2021, 2:22 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

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