Why Roku Stock Jumped Then Fell
- It was Netflix, not Roku, that made headlines.
- The increase in subscribers is a good sign for Roku’s future results.
- What benefits streaming also benefits Roku.
What’s going on with Roku stock
Roku stock jumped, then fell on Wednesday. Roku (NASDAQ:ROKU) started the day off strong, jumping 2% early on. However, they lost their gains, and the stock was down 4% by market close.
Although there was no company-specific news, results from a streaming rival initially helped the stock of the streaming pioneer before market sentiment turned negative and dragged the stock lower.
Why we care
On Tuesday, Netflix (NASDAQ:NFLX) reported their third-quarter results, which were much better than expected. The service had added 2.4 million subscribers, which is way more than their guidance (and Wall Street’s consensus estimate) of only 1 million. Because investors were so pleased with this news, Netflix stock shot up 13% by Wednesday’s market close.
The company’s revenue increased by 5.9% this year, amounting to $7.9 billion. However, because of the heavy influence of the strong dollar, their growth appears smaller than it is. Netflix’s revenue would have been 13% higher if not for foreign exchange rates. Nevertheless, thanks to fiscal discipline and a loyal subscribers base, they could still maintain high earnings per share at $3.10, exceeding the $2.14 forecast by analysts.
In other words, Roku has been struggling because people stopped streaming as much as they used to. However, this recent revival in Netflix‘s subscribers proves that viewers just took a break from streaming rather than completely halting the activity. Therefore, claims of the industry’s downfall were premature and unfounded.
Roku’s growth in active accounts and streaming hours has slowed down over the past year, growing only 14% and 19% during the first and second quarters, respectively. This caused some investors to worry that Roku was past its prime. However, when Netflix’s subscriber numbers rose again, it gave investors hope that Roku would see a similar increase soon. However, that hope was fleeting.
We will know Roku’s third-quarter results soon, as the company has scheduled to release them after Wednesday’s market close on November 2.
As we’ve stated before, Roku is experiencing some difficulties but still has potential. This makes the streaming platform leader a buy.