One look at the chart of the Roku, Inc. (Nasdaq: ROKU) stock and you may be concerned about it. But when you inspect the fundamentals, you wonder why the chart is saying something entirely different. So which should you pay attention to? The fundamental or the technical?
What Has Happened?
Source: August de Richelieu
The year has barely begun but ROKU is already down by 25%. This fall brings the total dip from the stock’s all-time high of $490 to over 60%.
The general pullback that has affected most growth stocks can be blamed for a portion of the dip. But the rest of the blame can be attributed to a lower number of active accounts in FY ‘21, Q3 revenues falling below expectations and Q4 guidance being far from ambitious.
Realistically, this was bound to happen. The entire world had to stay at home at the height of the pandemic in 2020, and people needed ways to entertain themselves. Enter Roku, a TV streaming platform. More people used Roku at that time than ever before, and the stock soared by over 700%. So, whatever revenues the company reported post-pandemic, with more people back at work, was bound to be comparatively less exciting.
Do not be deceived by this dip, however. Roku is not doing badly at all. In that same 2021, while the stock dipped, the top-selling smart TV Operating System in the United States was Roku OS. A feat it achieved the previous year. Roku also maintains a substantial TV streaming market share in all of North America. And if you think Roku’s concentration is focused on North America, Roku is trying to break international barriers by expanding its services in South America and Europe
The dip in the stock doesn’t tell the full story of ROKU’s strong financial reports. Total revenue saw an increase of 51% to $680 million YoY, gross profit jumped by 69% to $364 million YoY, while platform revenue didn’t stop until it climbed by 89% to 583 million YoY. Both active accounts and streaming hours also increased from what they were in the previous quarter.
What continues to excite investors and attract people to the stock is its long-term prospects. Since its brief pandemic-induced dip of 2020, the ROKU went climbed by over 700% to its all-time high. This is a testament to how far the stock can grow in the future.
A great fall is what best describes what Roku has endured since it reached its all-time high of $490. It tore through the $287 – $304 support level like a finger tears through a wet tissue paper. Already, it is mounting strong pressure on the $173 – $190 support level, with a strong weekly bearish candlestick that represents the first week of 2022.
Whether the support level survives this assault is yet to be determined. But if it holds true, it may make a good level for the price to settle before mounting a bullish challenge. And investors would hope this happens or they may begin to lose hope in the stock. The next support level is 55% below the current support level.
All things considered, a dip is always a good thing for new investors on growth stocks with the strong resume that Roku has. And this is why many investors may be looking to take advantage of this pullback.