Why some analysts are still worried about Roku even after it posted strong Q4 results

Published Thu, Feb 16 20238:16 AM EST

Roku is not out of the woods yet, even after posting strong results for the fourth quarter, according to some analysts. The streaming platform on Wednesday reported a smaller-than-expected loss for the quarter along with revenue that beat analyst expectations. The company's first-quarter revenue guidance of about $700 million also beat a StreetAccount estimate of $691.6 million. While those results and guidance are welcome by the market — Roku shares rallied 12% in the premarket — some analysts covering the stock remain skeptical about the company's prospects going forward. "Our thesis remains the same," wrote Jefferies analyst Andrew Uerkwitz. He noted that ad budgets would be cut in 2023 and 2024 "as broader macro weakness hurts return on ad spend and 2) outsized CTV growth will be driven by premium platforms that will not benefit Roku in the [near term]." Uerkwitz reiterated his under perform rating on the stock, though he did increase his price target by $6 to $36 per share. That still implies downside of more than 40%. The ad market has taken a hit in recent months as companies pulled back as a way to save money. Companies impacted by this go beyond Roku. A slide in digital advertising revenue has hit a large swath of technology companies, as concerns of a potential recession grow. Guggenheim analyst Michael Morris also reiterated his neutral rating on the stock, noting: "We struggle with limited insight into core trends as we remain concerned about a potentially volatile ad environment in 2023." Even JPMorgan's Cory Carpenter, who has an overweight rating on the stock, said highlighted concerns around the ad market going forward. Because the ad market worsened throughout the fourth quarter, he said ad revenue stabilizing or slightly improving in the first quarter would still place Roku "well below" where it started the prior quarter. "Some investors are likely to view it as conservative given Roku beat its guide by 5%/8% in 2Q/3Q," Carpenter said in a note to clients Thursday. "However, we think the 1Q guide is more realistic and assumes current trends persist through the qtr, which compares to Roku's 4Q guide that assumed ad trends would deteriorate." Others were more sanguine on Roku, noting that its first-quarter guidance may be too conservative. Oppenheimer analyst Jason Helfstein said investors can ignore the guidance given management's track record of offering conservative guidance. Jefferies' Uerkwitz also noted Roku has beat its guidance by an average of 4% since it reinstated the tradition of setting expectations for the current quarter in 2021. "Given mgmt's track record of conservative guidance ... we think investors will look past weaker 1Q revenue guidance," Helfstein said in a Wednesday note to clients. The company has only missed expectations in two of the last eight quarters, Uerkwitz said. And it would be the third consecutive quarter that the guidance was too low, according to Evercore ISI analyst Shweta Khajuria. Meanwhile, Wells Fargo analyst Steven Cahall said it seems like the ad market will neither get worse or better in the first quarter. He predicts that ad pricing per hour is down around 20% in the first quarter compared with the same quarter a year prior. — CNBC's Michael Bloom contributed to this report.