Roku Earnings: Results Remain Impressive, but Some Recent Tailwinds Will Soon Moderate

Roku reported a much stronger third quarter than we expected, with platform revenue coming in well ahead of the company’s guidance and profitability continuing to take hold. We suspect the double-digit stock decline in after-hours trading was due to underwhelming fourth-quarter guidance and a realization that some of the tailwinds that drove the third-quarter outperformance will be fleeting. Overall, Roku is executing very well, and its business remains strong. However, we think it will be difficult to keep up these levels of growth, as we don’t believe the firm has a moat to give it a long-term edge over other connected TV platforms or free streaming channels. Even with our view that the firm can continue growing at a strong clip, we think the stock is overvalued, as we maintain our $50 fair value estimate.