ROKU - Roku: Investors Are Getting Stuck In This Trap Again (Downgrade)

2024-04-30 08:30:00 ET

Summary

• Roku disappointed investors with guidance suggesting increased spending in the second half, affecting its profitability growth.
• Roku's market leadership has not translated into sustainable profitability.
• ROKU stock's uptrend bias has likely been invalidated as it dropped nearly 50% from its December 2023 highs.
• ROKU investors have experienced the stock nearly making a round trip. Being contrarian isn't wise, as Roku has failed to deliver consistent profitability.
• With growth investors likely allocating toward AI growth stocks, I explain why ROKU's FOMO days are likely behind it.

Roku, Inc. ( ROKU ) has continued to disappoint its investors as the headwinds of increased sales and marketing spending for Roku's device segment likely led to a reversal on ROKU stock's initial post-earning surge. Accordingly, Roku posted its first-quarter earnings release last week, surpassing Wall Street estimates. Roku headed into its Q1 earnings with relative pessimism, as ROKU buyers failed to defend the $60 level in early April. As a result, ROKU also felt the impact of the broad market pullback in April, as investors reassessed the ROKU's growth premium. I upgraded ROKU to Buy in mid-February 2024. However, that thesis has not panned out, as the market correctly anticipated more intense profitability growth inflection challenges for Roku in 2024....

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