Is Roku Stock A Buy Following Strong Q2 Results?

ROKU: Roku logo

Roku (NASDAQ:ROKU) published its Q2 2023 results on Thursday, beating estimates on key metrics including subscriber additions and overall revenue growth, taking the stock up by about 8% in after-hours trading on Thursday. While revenues rose by 11% year-over-year to $847 million, net losses stood at a narrower-than-expected $0.76 per share.

The advertising market has been facing headwinds as concerns about inflation and slowing consumer spending hurt spending by marketers on TV advertising. However, Roku managed to grow revenue for its platform business – which sells ads and content – by 11%, driven by a 16% year-over-year increase in active users. This helped to more than offset a 7% decline in average revenue per subscriber.

Roku’s elevated operating expenses have been a problem of late primarily due to high sales and marketing costs. However, over Q2, the company made progress with scaling back costs, with total operating expenses rising by just about 8%, down from an increase of 42% in Q1. Expenses also declined on a sequential basis.

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Roku stock now remains up by close to 82% ytd based on the after-market price, trading at about $74 per share. So are more gains in the cards for Roku?  There’s probably a bit more room for upside in the stock. Although the ad market has seen challenges of late, things could improve as inflation eases. Moreover, the secular trend of ad dollars shifting away from linear television to digital video formats is likely to benefit Roku. The company’s revenue guidance for Q3 was also a bit better than expected. Roku is also better managing its costs, guiding that year-over-year growth rates for operating expenses are likely to be lower in Q3 than Q2. We value Roku stock at about $80, which is about 10% ahead of the current market price.  See our analysis on Roku Valuation: Expensive or Cheap for more details on what’s driving our price estimate for Roku. Our analysis of Roku Revenue has more details on the company’s business model and key revenue streams.

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Returns Jul 2023
MTD [1]
YTD [1]
Total [2]
 ROKU Return 7% 68% 32%
 S&P 500 Return 2% 18% 103%
 Trefis Multi-Strategy Portfolio 6% 25% 303%

[1] Month-to-date and year-to-date as of 7/28/2023
[2] Cumulative total returns since the end of 2016

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