Shares of Roku (NASDAQ:ROKU) opened Thursday's trading 17.6% lower, following the streaming media expert's release of third-quarter results. Ten minutes before noon EST, the stock had recovered somewhat to a drop of 10.4%.
Roku's third-quarter sales rose 50% year over year to $261 million, powered by a 36% increase in the number of active user accounts and 30% higher average revenues per user (ARPU). On the bottom line, net losses more than doubled from $0.09 to $0.22 per share. Your average Wall Street firm had been looking for a wider net loss of $0.28 per share on just $256 million of top-line revenues, so Roku exceeded the Street's stated expectations across the board.
But the stock came screaming around the bend into this earnings report, having gained a spectacular 360% year to date at the close of trading on Wednesday. Modest revenue and earnings surprises weren't enough to sustain those lofty gains, so Roku's stock came crashing down.
Don't take my word for the reasons behind Roku's drop. Wall Street generally agrees.
Analyst firm Guggenheim lowered its price target on Roku's stock from $170 to $150, noting that this quarter's surprises were smaller than usual. RBC Capital boosted its targets from $155 to $160, still citing a "much smaller" revenue beat than Roku delivered in the first and second quarters of 2019. Morgan Stanley said that Roku's sky-high valuation in spite of negative earnings basically requires "continued upside surprises."
Against that backdrop, it's not surprising to see Roku's shares take a big hit on a report that simply wasn't incredibly impressive. Good enough isn't always good enough when you're investing in skyrocketing market darlings -- like Roku.