Is Roku a buy at all time highs?

It’s time to breakdown one of the biggest digital entertainment names in the game. Here is the breakdown on $ROKU, otherwise known as Roku.


Current Price: $358.23

52/Wk High: $363.44

52/Wk Low: $58.22


Market Cap: $45.5 Billion


Read below for the breakdown!


Roku is a major streaming platform in which enables users to watch content on-demand. Not only that but Roku allows customers to customize the platform with their own content selection including cable TV offerings.


Breaking down the stock price according to TREFIS (@trefis) 94.78% of the stock price is based on Roku’s Ads & Commissions segment.


Furthermore, 0.72% of Roku’s stock price is based on the company’s Devices & Accessories segment, while 4.50% of the stock price is based on Cash and or net of debt.


Shifting into the numbers Roku continues to impress even though the competition in the content streaming space is fierce with competitors like Netflix and Disney.


In Roku’s most recent earnings report the company beat expectations with an EPS of $0.09 versus the EPS consensus estimate of $-0.40. Not only did Roku beat EPS expectations but the company saw plenty of growth under the hood.


Roku went on to report Q3 total net revenues of $452 million, a huge 73% increase on a year over year basis. Management also reported that Platform revenue increased by 78% to $319 million.


Shifting into gross profit, management reported that gross profit increased by 81% year over year to a whopping $215 million.


When it comes to users Roku added 2.9 million active accounts in Q3, increasing active accounts to 46 million in total. Those users were also quite active as well with streaming hours increasing by 0.2 billion more than the previous quarter of 14.8 billion.


Customers are also consistently generating more revenue, with average revenue per user growing to $27.00, representing a 20% increase year over year in ARPU.


As for margins, Roku reported a Q3 Platform gross margin of 61% and a player gross margin of 15.2%, both of which improved over Q2. On the downside, Platform gross margin was less than the 2019 Q3 level of 62.6%.


Roku’s total operating expenses also continued to increase, reaching $202.9 million, representing a 40% increase since Q3 2019. As for income from operations, the company finally turned positive, reporting $12 million in income from operations.


Rounding out Roku’s Q3 results the company reported an Adjusted EBITDA of $56.2 million, much better than the Q3 2019 adjusted EBITDA level of $-0.4 million.


Taking a look at the balance sheet the numbers are not bad.


Total Debt: $96 million


Total Liabilities: $888 million


Total Assets: $2.104 billion


Cash & Short Term Inv: $1.047 billion


While the numbers are great the valuation has gotten a bit expensive.


Price to Sales: 29.72x


Price to Book: 35.77x


Price to Cash Flow: 510.59x


Management has done a solid job but has room to improve.


Return on Equity: -11.97%


Return on Assets: -6.70%


Return on Invested Capital: -8.90%


Given the numbers the analysts are mixed with the mean price target sitting at $269.15/share, representing a -24.87% downside.


It is also important to note that the high price target is $410.00/share, representing a 14.44% gain, while the low price target is 173.00/share, representing a -51.71% loss.


The big money is also quite involved with 71.18% of Roku being owned by institutions. Top holders include The Vanguard Group, Ark Investment Management, and BlackRock Institutional Trust.


The technicals continue to look bullish as well. Taking a look at the six-month charts the MACD is moving with upward momentum within a tight range around 24.91.


The six-month charts are also indicating an RSI of 77.88 and CCI of 123.44, both of which are on the high end. It is also important to note that Roku trades very close to all-time highs.


In short, Roku is a great long-term pick with consistent user growth behind it but the stock has gone parabolic in recent months and a minimal pullback could serve as a buying opportunity.


EAT - SLEEP - PROFIT


Disclaimer: This is not direct financial advice, simply an opinion based on independent research.