Roku stock plummets on Q4 revenue miss

Yahoo Finance's Julie Hyman and Brian Sozzi break down Roku's latest earnings results.

Video Transcript

JULIE HYMAN: All of those competing headlines have been affecting the markets. And the backdrop is that individual stocks are really being punished when they miss estimates. So let's look at exhibit A this morning, Brian Sozzi. And that has got to be Roku. The stock is tumbling more than 27%, almost 28%.

Let's run through the numbers real quickly here. You see their earnings per share actually beat analysts' estimates, but revenue fell short of estimates in the fourth quarter. And also the first quarter sales forecast is short of what analysts had been predicting. Roku seeing some weak advertising trends, so that is not helping matters here.

That first quarter revenue forecast is for $720 million. $751 1/2 million is what analysts had been predicting. Now, some analysts are still optimistic that the company's issues here are temporary. But the market is not, right? We're not seeing a lot of patience, Brian, being expressed this morning by investors.

BRIAN SOZZI: Julie, there's no other way to summarize this quarter market response. Just, Oh my-- OMG. That is the only thing I think you can really say here off of this market response to Roku. This is terrible, absolutely terrible. You're seeing slowing growth here in average revenue per user from Roku. They're noting that margins are under pressure because of ongoing supply constraints in the TV industry.

Keep in mind, it's not just those plastic sticks that Roku produces. They're also integrating their operating systems into many TVs. It's been a key growth driver for this company for about two and a half, three years. But it's harder to get those TVs to market because of the fact that TVs now are smart and need semiconductors which are in short supply.

But the real problem here, Julie, is the adjusted operating profit outlook, which Roku didn't put in its press release, but they sure did mention it in their earnings call last night. They're looking for about $150 million this year in adjusted operating profits. The Street was about at $540 million.

So that is a horrific outlook for Roku. And I think-- a friend of the show, Steve Cahall over at Wells Fargo, analyst who covers media, he put it perfectly. Roku is now likely a dead money stock. Dead money. They just don't see any catalyst to get Roku shares moving here. I have a little more on Cahall's call now on the Yahoo Finance homepage. But still, this quarter stinks from Roku. The outlook stinks. It in fact probably is dead money.

JULIE HYMAN: And yet, interestingly, Cahall still has an equal weight on the stock, so I guess he's willing to ride it out. MoffettNathanson and Morgan Stanley were the only two firms that were sells, or the equivalents of sells, on Roku going into these numbers. And Michael Nathanson over at MoffettNathanson says, "Roku will have to win from here against rivals with bigger checkbooks, deeper teams of engineers, and better content."

So we're looking at increased spending, potentially, in order to keep up with competitors. Some of the other analysts talking about a late entry into the international market for which Roku is being penalized. And there's one other comment that I thought was really interesting from Nathanson. He said, the stock will likely hit a bottom, quote, "when the equity value gets low enough for rumors of an accretive takeover to be considered possible." So I don't hear any of those right now. So maybe the stock is still going down here in the short term.

BRIAN SOZZI: And [INAUDIBLE], I appreciate it. We've heard it in the past before, Roku as a potential takeover acquisition. But Anthony Wood remains a significant shareholder in Roku. He, of course, the CEO and founder of Roku. It's up to him if he wants to put the company up for sale. But it's hard to believe that will happen with-- after a quarter, where you're seeing the market response almost down 30% here, I mean, it's just not a good outlook. But again, Julie, I mentioned in the story here on the Yahoo Finance homepage, Roku looks to be going into an Amazon-like investment cycle, and clearly the street doesn't like it.

JULIE HYMAN: No, and we've seen Amazon get punished for that in the past. But Roku is no Amazon. So this punishment looks to be a lot more severe. Now, this really feeds into a theme that you and I have been talking about this week, which is that there are really some individual companies that have been punished so harshly when they miss. And not even necessarily when they-- I mean, this is not a risk-- a miss across the board for Roku, to be clear. Yes, it is a very negative outlook. But on things like gross margin, the company met estimates.