Roku stock plummets, expert warns it is now ‘dead money’

Wall Street is advising investors to avoid Roku (ROKU) following the streaming giant’s dire earnings warning for 2022 as it reinvests in its company.

Roku’s stock plummeted 25% to $107 in pre-market trade on Friday, as Wall Street slammed the reset button on the company’s value.

“However, we don’t expect investors to stick around for the journey. With a significant reduction in EBITDA, we have a significantly more pessimistic view of Active Account value, hence our EV/Active Account-based valuation has been slashed. Given the magnitude of the pullback, we’re keeping Roku at Equal Weight, but consider it dead money until proof points emerge “Steve Cahall, a media analyst at Wells Fargo, said in a note.

As individuals re-engaged with the real world during the epidemic, Roku’s growth slowed in the fourth quarter in areas like active accounts and average revenue per user. The company’s adjusted operating margins fell 750 basis points year over year, owing to supply chain issues that weighed on Roku hardware profits.

Here’s how Roku fared against Wall Street expectations in the fourth quarter:

$865.3 million vs. $894 million in net sales

$0.18 diluted EPS vs. $0.05

However, as the firm enters one of those Amazon-like investment cycles, Roku’s outlook leaves a lot to be desired.

Roku expects adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation) to be about $150 million for the entire year. The Street was expecting adjusted operating profits of $535 million.

“We opted to continue or return to our historically aggressive investment levels as we went past some of the worst uncertainty surrounding the pandemic. As a result, considerable investment is expected in the second half of 2021 and into 2022 “On an earnings call, Roku CFO Steve Louden stated.