Roku's Strong Q4 Results Fail To Deter Doubts

Even after posting strong results for the fourth quarter, some analysts believe Roku isn't out of the woods just yet.

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Analyst expectations were beaten by the streaming platform on Wednesday with smaller-than-expected losses and revenue exceeding expectations. It also beat StreetAccount's $691.6 million estimate for first-quarter revenue of about $700 million.

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Some analysts covering Roku remain skeptical about the company's prospects going forward, despite those results and guidance being welcomed by the market. Roku shares rallied 12% in the premarket.

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Jefferies analyst Andrew Uerkwitz wrote, "Our thesis remains the same." The analyst noted that ad budgets would be cut in 2023 and 2024, "due to macroeconomic weakness and outsized CTV growth being driven by premium platforms."

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Despite raising his price target by $6 to $36, Uerkwitz reiterated his underperforming rating on the stock. The downside still amounts to more than 40%.

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Companies have pulled back in recent months to save money, which has hurt the ad market. Roku is not the only company affected by this. As concerns of a potential recession grow, a large swath of technology companies is seeing digital advertising revenue decline.

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Michael Morris reiterated Guggenheim's neutral rating on the stock, noting: “Our limited insight into core trends leaves us concerned about a potentially volatile ad environment in 2023.”

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Despite JPMorgan's overweight rating on the stock, Cory Carpenter expressed concerns about the ad market. Despite an improving ad market in the first quarter, he said Roku would still be "well below" where it started the prior quarter despite stabilizing ad revenue.

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“Considering Roku beat its guidance by 5%/8% in 2Q/3Q, some investors may view it as conservative,” Carpenter said in a note. As opposed to Roku's 4Q guide, we believe the 1Q guide is more realistic and assumes current trends will continue throughout the quarter."

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Some were more optimistic about Roku, noting that its first-quarter guidance may be too conservative.

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Based on management's track record of providing conservative guidance, Oppenheimer analyst Jason Helfstein said investors can ignore the guidance. In 2021, Roku reinstated the tradition of setting expectations for the current quarter, and since then it has outperformed those expectations by an average of 4%, according to Jefferies' Uerkwitz.

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“Considering management's history of conservative guidance, investors should look past weak revenue guidance for 1Q," Helfstein said.

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During the past eight quarters, only two of the company's earnings have been below expectations, Uerkwitz said. Shweta Khajuria, an analyst with Evercore ISI, says the guidance would be too low for the third consecutive quarter.

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Steven Cahall, an analyst at Wells Fargo, said the ad market does not seem to be improving or deteriorating in the first quarter. According to him, ad pricing per hour is expected to be down around 20% in the first quarter compared with the previous quarter.

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