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Roku recently posted their latest quarterly report. They revealed that they added 4.6 million new accounts during the quarter which means that they now have 70 million users. Analysts expected them to add around 3 million new users. This is a very large expectations beat. They also brought in $867 million dollars vs $803 million in expected revenue. They did lose $1.70 per share, but they were expected to lose $1.72 a share. For the current quarter, Roku is expecting to bring in $700 million in revenue which is a decrease from last year. Wednesday, Roku stock saw a large increase of 12.1%, and today, they saw an increase of 11.2%. Is the stock really a buy though?
Roku, at time of writing, has a p/e (price/earnings) ratio of almost 60. That's a very high p/e ratio. I don't believe that a high p/e ratio is necessarily a bad thing. If a company is experiencing very high growth, buying the stock at a hefty premium is not a bad thing. I would classify Roku as a growth stock (although their current quarter is expected to be a down quarter from last year). They have experienced massive year over year growth from 2018-2021. 2022 was a tough year for the company though. It experienced slowing revenue, and the stock fell 80%. While the company did have a great last quarter in my opinion, I do have a hard time justifying buying the stock at a p/e ratio of 60 when I see so much uncertainty.
Many people see Roku as a good acquisition play. Netflix is a candidate for this that I often see mentioned. Netflix could buy Roku to get into the hardware business. This is just speculation as Netflix has not stated any intention of buying Roku, but I have often heard people mention this when trying to justify Roku's high p/e ratio. I think an acquisition would be great for Roku, but I don't know if it would be great for Netflix. If they are trying to enter the hardware business, it would help that they are buying an established brand, but considering that Roku is currently trading at a $9.83 billion market cap and Netflix would have to pay an increase on that to get shareholders of Roku to approve, it would be a very expensive acquisition for Netflix to make.
Roku is not a company that I would invest in at this time. I will be watching to see how this year goes for Roku, and if I can see the growth that they need to happen happening, then I would be willing to invest in the company.
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