Roku, Inc.Short
No clear bottom for ROKU
In this post I will lay out what I believe the bull and bear cases are for ROKU while showing a pattern I noticed this week on the 4-hour timeframe that is holding steady on the daily, weekly and monthly charts.
ROKU Technical analysis
ROKU is in freefall territory with no clear bottom in sight. When I looked at the 4-hour timeframe at the end of the year, I saw a potential head & shoulders pattern emerging since late December. Additionally, ROKU has already been in a steady declining channel since late July. ROKU just recently broke a low not seen Nov of '20 (see the yellow arrow).
If we look at the MACD we see that the signal line has not crossed back over. This lends itself to confirm that the bigger downtrend is still intact.
Additionally, we are consistently hitting lower lows and lower highs more often than not on both short term and longer-term timeframe charts. Most notably the 4-hour (not pictured), daily, weekly, and monthly charts (not pictured).
The RSI indicates oversold values. One could make the contrarian argument that this represents a buying opportunity. The problem I see with this bullish stance is that the longer-term trend has yet to reverse itself.
Bull case: ROKU is a streaming device platform company that is aligning itself strategically with companies that are primarily hardware device manufacturers for the integration of its players/platform and accessories. ROKU is still a relatively young company as it was founded in 2002 and is going through similar growing pains that other early-stage alternative technology entertainment companies have gone though. ROKU is also maintaining partnerships with other media companies that are leaders in original content such as YouTube TV and Apple TV. The revenue is growing in the right direction.
Bear case: ROKU recently has seen declining growth in its subscription service and that has helped accelerate a downward decline in the stock price. While companies that largely rely on subscribers and advertising revenue do not report subscription data in a format that is easy to compare, the sentiment with ROKU as of late has largely been negative due to the numbers the company has reported. It is hard to compare ROKU to any other technology company because it is not successfully separating itself from any would be competitors (even as it tries to align itself with those same companies). Most of these companies (Netflix, Apple, Alphabet, etc) will not see significant upside or downside by aligning or competing directly with ROKU as it is a relatively small player in terms of market capitalization. Alphabet is a much broader and larger tech company that also creates its own streaming devices. Apple does the same and also creates its own original content. ROKU is neither an OEM nor carved out a niche as an original content creator. When's the last time anybody heard serious buzz regarding a show you could only watch on ROKU?
This is where ROKU falls short. Unless it can find a way to set itself apart by creating original content and/or innovating its platform as a host to content providers the business itself appears unsustainable. While the company's revenue is growing, so is its debt. The FCF and revenue are growing at a much faster rate, but this can largely be explained by the work-from-home boom that many companies such as ROKU benefited from during the pandemic.
Since Q1 '21 the quarterly profit margin has been on a decline and the debt to asset ratio has started a positive trend over the last 2 quarters when it appeared it was decreasing and leveling off. Additionally, the stock still trades at a very high EPS, even after being down by more than 50% from all-time highs.
[u]Summary[/u]
In its current form, it is hard to picture a future where ROKU successfully plays a middleman of sorts in a digital online entertainment driven world as more and more consumers move towards cutting the cord. Content is king and anybody with an internet connection and an HDMI cable can connect their laptop to an HDTV to stream any service(s) they subscribe to. Additionally, most OEMs make their own smart TVs and enabled devices. And as stated above, there are a range of dongles that provide the ability to cast one's phone or computer over their home Wi-Fi network. I project more pain for ROKU ahead and no clear bottom in sight.
ROKU Technical analysisROKU is in freefall territory with no clear bottom in sight. When I looked at the 4-hour timeframe at the end of the year, I saw a potential head & shoulders pattern emerging since late December. Additionally, ROKU has already been in a steady declining channel since late July. ROKU just recently broke a low not seen Nov of '20 (see the yellow arrow).
If we look at the MACD we see that the signal line has not crossed back over. This lends itself to confirm that the bigger downtrend is still intact.
Additionally, we are consistently hitting lower lows and lower highs more often than not on both short term and longer-term timeframe charts. Most notably the 4-hour (not pictured), daily, weekly, and monthly charts (not pictured).
The RSI indicates oversold values. One could make the contrarian argument that this represents a buying opportunity. The problem I see with this bullish stance is that the longer-term trend has yet to reverse itself.
Bull case: ROKU is a streaming device platform company that is aligning itself strategically with companies that are primarily hardware device manufacturers for the integration of its players/platform and accessories. ROKU is still a relatively young company as it was founded in 2002 and is going through similar growing pains that other early-stage alternative technology entertainment companies have gone though. ROKU is also maintaining partnerships with other media companies that are leaders in original content such as YouTube TV and Apple TV. The revenue is growing in the right direction.
Bear case: ROKU recently has seen declining growth in its subscription service and that has helped accelerate a downward decline in the stock price. While companies that largely rely on subscribers and advertising revenue do not report subscription data in a format that is easy to compare, the sentiment with ROKU as of late has largely been negative due to the numbers the company has reported. It is hard to compare ROKU to any other technology company because it is not successfully separating itself from any would be competitors (even as it tries to align itself with those same companies). Most of these companies (Netflix, Apple, Alphabet, etc) will not see significant upside or downside by aligning or competing directly with ROKU as it is a relatively small player in terms of market capitalization. Alphabet is a much broader and larger tech company that also creates its own streaming devices. Apple does the same and also creates its own original content. ROKU is neither an OEM nor carved out a niche as an original content creator. When's the last time anybody heard serious buzz regarding a show you could only watch on ROKU?
This is where ROKU falls short. Unless it can find a way to set itself apart by creating original content and/or innovating its platform as a host to content providers the business itself appears unsustainable. While the company's revenue is growing, so is its debt. The FCF and revenue are growing at a much faster rate, but this can largely be explained by the work-from-home boom that many companies such as ROKU benefited from during the pandemic.
Since Q1 '21 the quarterly profit margin has been on a decline and the debt to asset ratio has started a positive trend over the last 2 quarters when it appeared it was decreasing and leveling off. Additionally, the stock still trades at a very high EPS, even after being down by more than 50% from all-time highs.
[u]Summary[/u]
In its current form, it is hard to picture a future where ROKU successfully plays a middleman of sorts in a digital online entertainment driven world as more and more consumers move towards cutting the cord. Content is king and anybody with an internet connection and an HDMI cable can connect their laptop to an HDTV to stream any service(s) they subscribe to. Additionally, most OEMs make their own smart TVs and enabled devices. And as stated above, there are a range of dongles that provide the ability to cast one's phone or computer over their home Wi-Fi network. I project more pain for ROKU ahead and no clear bottom in sight.
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