Roku Stock: Should You Buy Before or After This Week’s Earnings Report?

If streaming services were popular before 2020, it’s safe to say they’ve reached a new era of hype this year. Stay-at-home orders have kept millions of people at home on a daily basis as the world comes to grips with the global health pandemic. That’s why it’s not surprising to see businesses that provide streaming media services show strength in the market over the past few months.

One of the most intriguing streaming stocks to look at is Roku (NASDAQ:ROKU). The company manufactures digital media players that helps its customer's stream content on the internet through their televisions. It is a company that has been steadily growing and is converting more and more loyal cable-television viewers to cord-cutters every day. Roku reports earnings this week on Thursday, May 7^th after market close.

Let’s take a closer look at Roku’s business model below and decide whether or not new positions should be opened before or after the report has been released.

Full Stream Ahead

There’s a big reason why Roku has experienced such strong performance in the market since it’s IPO back in September 2017. The company is changing the way that people consume media. It allows its customers to forego pricey monthly cable bills and instead select exactly what they want to watch on their televisions. As more and more people move away from traditional television, Roku stands to benefit greatly. They also have a nice stream of advertising revenue that allows them to sell advertising for their own Roku channel as well as for the 1,000+ streaming applications that are available on the Roku platform.

You might be thinking that the streaming space is already quite saturated with the likes of Amazon, Netflix, Apple, Hulu, and Disney competing for market share. However, it’s important for investors to understand that Roku is quite different from those companies. Roku’s business model stands apart because it is positioned as the top distribution platform for all streaming content. Instead of spending a ton of money trying to produce original content, Roku is focused on helping people connect their televisions to the streaming world and linking marketers up with cord-cutters via the Roku streaming ecosystem.

Earnings Preview

The general consensus for Roku’s Q1 earnings is positive, particularly with the changes that have occurred in 2020 as a result of the global health pandemic. The company provided estimates of Q1 revenue ranging from $307 to $317 million, which is roughly a 50% year over year growth rate. That type of revenue increase is exciting, particularly when a company like
Roku still has a lot of room to grow.

Streaming hours, which is another important metric that the street looks at for Roku to assess their earnings, is also expected to come in at 13.2 billion, which is another massive year over year increase. This is an important number because it shows boosted potential for advertising since more eyes are viewing content with Roku than ever before.

It will be very interesting to hear what Roku’s CEO Anthony Wood and his management team have to say about expanding into international markets, which is likely the next big move to continue growing the company. We’ve already seen stellar streaming numbers from Netflix (NASDAQ:NFLX) and Disney (NYSE:DIS) when they recently announced their earnings, which bodes well for Roku. Just keep in mind that these positive numbers are likely already priced into the stock.

Buy Before or After Earnings?

If you are interested in picking up some shares of Roku, you might be wondering whether or not to buy them before or after the earnings report. Although the company has a lot of positivity surrounding it at the moment, it’s very likely that this positivity is already priced into the share price. The truth is that earnings reports can be very unpredictable. Roku has experienced some sharp downturns over the years, which means that buying ahead of an earnings report with high-expectations comes with considerable risk.

As an investor, it makes sense to wait until after Roku reports their Q1 earnings to consider opening a new position. That way, you are able to dive deep into the financials for the previous quarter and avoid any sharp downturns that might occur as the report is digested by the market.  

Streaming Simplified

We know that the demand for streaming services is rapidly increasing and that Roku is well-positioned to take advantage of the trend. Keep an eye out for their earnings report this week but practice patience before opening a new position in the company, especially since the momentum stock has been known to experience wild price swings.