In the current market environment, it's hard to be bullish on a growth technology stock, especially when it gets clobbered after its earnings report.
Mark Mahaney, head of Internet Research at Evercore ISI, is sticking with a bullish thesis on Roku Inc. (NASDAQ:ROKU) and discussed the issue on Friday's PreMarket Prep Show.
The Company: Roku is the leading streaming platform in the U.S. by hours watched with under 59 billion hours of content streamed in 2020. The firm's eponymous operating system is used not only in Roku's own hardware but in co-branded TVs and soundbars from manufacturers like TCL, Onn, and Hisense.
Fall From Grace: It's hard to imagine the issue peaked in July at $490.76 has been lower on a monthly basis in seven of the last eight months. The one outlier was a meager gain in December ($227.61 to $228.20).
On Thursday, the issue reached its lowest level of the retreat ($143) and ended the session not far off that at $144.71.
Q4 Report And Guidance: The company reported an EPS beat of a dime ($0.17 vs. $0.07 estimate), but missed on sales ($865.35 million vs. $894.01 million) The mixed report isn't what's causing investors to exit the issue, it's the lower first-quarter sales guidance ($720 million vs. $748.50 million).
If there's one thing the Street isn't tolerating this quarter, it's slowing growth that has doomed several issues during the earnings season.
Mahaney’s Take: Mahaney acknowledged favoring the issue before last night’s report and lower guidance and 25% haircut in Friday’s session.
“The revenue growth is still here and it is premium and I still like the long-term growth and the long-term market opportunity," he said.
Co-host Dennis Dick asked: “Do you forecast this company actually being able to make money and is there growth rate support the price?”
Mahaney responded: “This stock is back to where it was pre-COVID, the issue has completely done a round trip, but the revenue base is bigger, so on a price to sales basis, the stock is actually cheaper.”
In Mahaney’s view, the question that needs to be asked is, “is a stronger asset fundamentally than it was pre-COVID or is it weaker? I think it is stronger...At some level, the use of streaming has accelerated and they do not face the maturity issue that Netflix did with their weak subscriber guidance.”
Price Action: After a much lower open ($106.11 vs. $144.71), the issue rebounded to $116 and resumed its mover lower. It went on to make a new low for the session at $102.60 and rebounded to the $107 area as of 1:30 p.m. EST.
The discussion with Mahaney can be found here and the entire interview begins at the 37-minute mark.
