Shares of streaming TV platform Roku (NASDAQ: ROKU) fell 7.35% in the morning session after Wells Fargo reduced its price target from $84 per share to $70. Although the firm maintained its Equal Weight rating and expects Roku's Q3 to meet expectations, it's forecasting a weaker Q4 on softness from lower advertising revenue. Furthermore, Wells Fargo stated that media and entertainment companies will have smaller budgets as they continue dealing with the Hollywood strikes. This negatively impacts Roku's business as much of the content on its platform is generated by those companies and studios.
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 is the market telling us:
Roku's shares are very volatile and over the last year have had 38 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The biggest move we wrote about over the last year was 3 months ago, when the company gained 13.5% on the news that the company reported second quarter results that blew past analysts' revenue expectations, partly driven by a beat in Active Accounts and partly by revenue per Active Account. The company observed improvements in some ad verticals, which is encouraging in the face of growing worries about inflation and sluggish economic growth. Additionally, adjusted EBITDA beat expectations, and the company stressed the commitment to deliver positive adjusted EBITDA for the full year 2024. The only minor negative we found was that revenue decelerated. Overall, we think this was a really good quarter that should please shareholders.
Roku is up 53.8% since the beginning of the year, but at $62.39 per share it is still trading 36% below its 52-week high of $97.49 from July 2023. Investors who bought $1,000 worth of Roku's shares 5 years ago would now be looking at an investment worth $1.09 thousand.
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