What Happened?
Shares of streaming TV platform Roku (NASDAQ: ROKU) fell 22.5% in the afternoon session after the company reported third-quarter earnings results. Its EBITDA forecast for the next quarter missed, and management's commentary around Platform revenue created uncertainty and some bearishness.
Prior to the call, there was a thought that Platform revenue growth should accelerate through 2025, but management seemed to temper this, which weighed on shares.
On the other hand, revenue and EBITDA came in ahead during the quarter. Overall, this quarter was mixed with guidance and Platform revenue uncertainty hurting the stock.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Roku? Access our full analysis report here, it’s free.
What The Market Is Telling Us
Roku’s shares are very volatile and have had 20 moves greater than 5% over the last year. But moves this big are rare even for Roku and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 8 days ago when the stock dropped 5% after the major indices declined (Nasdaq down 2%, S&P down 1.5%) as yields soared amid growing uncertainty about the future pace of rate cuts. Adding to the market's concern is the upcoming November 2024 presidential election, with investors still trying to figure out the potential policy direction under the next administration.
Additionally, the earnings season contributed to heightened volatility, with investors still processing weak quarterly updates from Starbucks and Boeing.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks, such as those in the technology sector, where the current value depends more on cash flows many years out in the future.
Roku is down 31% since the beginning of the year, and at $61.28 per share, it is trading 42.7% below its 52-week high of $106.87 from November 2023. Investors who bought $1,000 worth of Roku’s shares 5 years ago would now be looking at an investment worth $416.30.
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