Shares of streaming TV platform Roku (NASDAQ: ROKU) jumped 15.6% in the morning session after the company reported third quarter results that exceeded analysts' revenue expectations, driven in part by better active account growth. While revenue guidance for Q4 was in line, adjusted EBITDA guidance was well ahead, and that was probably the most exciting aspect of this earnings report. Overall, this quarter's results seemed fairly positive, and shareholders should feel optimistic.
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What is the market telling us:
Roku's shares are very volatile and over the last year have had 39 moves greater than 5%. But moves this big are very rare even for Roku and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move we wrote about was 15 days ago, when the company dropped 7.35% on the news that 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.
Roku is up 93.1% since the beginning of the year, but at $78.24 per share it is still trading 19.7% 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 $1,350.
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