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Shares of streaming giant Roku (NASDAQ: ROKU) are trading 74% below all-time highs, valuing the company at a market cap of $16.83 billion. Despite its massive pullback, ROKU stock has returned 370% to investors since its IPO in September 2017. Let’s see if the high-growth tech stock can stage a rebound in the next few months and surpass $200 per share in 2022.
Roku reports Q4 results
Last week, Roku announced its Q4 results and reported sales of $865.3 million and adjusted earnings of $0.17 per share. Comparatively, analysts forecast the company to report sales of $894 million and earnings of $0.07 per share in Q4. Roku estimated Q1 of 2022 sales at $720 million which was lower than consensus forecasts of $748.5 million.
We can see that Roku’s revenue miss in Q4 and less-than-impressive forecasts weighed heavily on its stock price dragging it significantly lower in recent trading sessions. However, the company achieved record revenue, gross profit, adjusted EBITDA, and average revenue per user in 2021.
Roku explained that every major media company is reorienting its business around streaming. These entities have launched a flagship service and have pumped in billions of dollars to license or create original content and to acquire customers. However, as we are still in the early days of the secular shift to streaming, Roku believes there is a massive gap between online viewership and ad budgets.
Roku enjoys a first-mover advantage and its operating system, The Roku Channel and its ad platform position the company to lead the accelerated shift towards streaming going forward.
During the earnings call, it explained, “The global shift to TV streaming remains intact and, along with our competitive advantages, will continue to drive our business in 2022 and the years ahead….. For 2022, we expect ongoing supply chain disruptions will continue to impact the global economy. This will affect the broader consumer electronics space, and the TV industry in particular.”
Roku expects its TV unit sales to remain below pre-COVID-19 levels which would also impact its active account growth. Further, on the monetization side, delayed ad spending in verticals impacted by supply chain disruptions will hurt revenue in 2022. Despite these headwinds, Roku expects revenue to rise by 35% year over year in 2022, which is higher than its Q1 sales growth estimates of 25%. Comparatively, its revenue was up by 33% in 2021.
Right now, Roku forecasts a gross margin of 50% in Q1 and as its business mix normalized towards video advertising, its platform gross margin should be around 60%.
What next for ROKU stock and investors?
Roku was among the tech companies that benefitted from COVID-19, which increased demand for streaming services. In Q4 of 2020, it increased player revenue by 18% and platform revenue by 81% year over year. In Q4 of 2021, its platform revenue was up by 49% while player revenue fell by 9% year over year.
Alternatively, its growth in the number of active accounts and streaming hours accelerated in Q4, indicating Roku is holding its own despite competition from tech heavyweights that include Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), and Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL).
Analysts tracking Roku expect sales in 2022 to rise by 35% to $3.74 billion and by 29.5% to $4.85 billion in 2023. Comparatively, its adjusted earnings per share might rise from $1.71 in 2021 to $3.2 in 2023.
So, ROKU stock is valued at a forward price to 2023 sales multiple of 3.4x and a price to earnings multiple of 39x which is quite reasonable. Analysts also expect Roku stock to touch $214 in the next 12-months, which is 74% above its current trading price.