What Happened?
Shares of streaming TV platform Roku (NASDAQ: ROKU) fell 6% in the afternoon session after the Nasdaq dropped 1.3%, marking its fourth consecutive day of losses, as investor concerns over the tech sector continue to mount. The downturn appears to be most pronounced in stocks heavily exposed to the AI market, with traders growing uneasy about stretched valuations and potential slowdowns in AI-related spending.
Adding to the pressure, a lack of positive economic data has fueled broader uncertainty about the U.S. economy, particularly regarding consumer confidence and corporate investment trends. Investors are looking ahead to Nvidia's earnings report tomorrow, as the semiconductor giant is expected to provide crucial insights into AI demand and broader tech infrastructure spending. Given Nvidia's dominance in AI chips, its performance could set the tone for the entire sector.
Separately, the trade debates are back after President Trump announced that the tariffs on Canada and Mexico will "go forward" when the temporary suspension expires in the coming week. This sparked fresh worries about supply chain issues and rising costs for companies that depend on cross-border trade, leading analysts to rethink the economic impact on affected industries.
Markets remain volatile as investors await clarity on these key issues, with upcoming earnings and policy updates likely to shape sentiment in the days ahead.
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 21 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 11 days ago when the stock gained 15.7% on the news that the company reported strong fourth-quarter 2024 results that easily cleared analysts' sales, EBITDA, and earnings expectations. Revenue grew 22% year on year, driven by a 25% increase in platform revenue, which benefited from higher advertising demand, including political ad spending, and deeper third-party platform integrations. However, its revenue outlook for the next quarter and the full year merely met Wall Street's expectations, raising questions about the staying power of platform revenue growth, especially as political ad spending recedes in 2025.
The profit outlook was more encouraging as full-year EBITDA guidance came in well above Wall Street estimates. Still, we think this was still a solid quarter with some key areas of upside. Following the impressive performance, Wells Fargo upgraded the stock's rating from Hold to Buy, adding, "We walk away from 4Q′24 much more bullish on [forward] upside driven by inventory growth, homescreen innovation and political tailwinds in' 26/'28.".
Roku is up 16.1% since the beginning of the year, but at $86.49 per share, it is still trading 12.7% below its 52-week high of $99.07 from February 2025. Investors who bought $1,000 worth of Roku’s shares 5 years ago would now be looking at an investment worth $728.79.
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