While many tech stocks fell today, Roku (NASDAQ:ROKU) stock was a standout – a rare spot of green in a sea of red. While the bulls’ burst of confidence is justified, Roku isn’t a darling of the market. However, I’m bullish on ROKU stock because new cost-reduction plans and an optimistic revenue outlook indicate that Roku’s comeback story is just getting underway.
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Headquartered in California, Roku sells equipment and related software to help users stream video and audio content, such as from a Netflix (NASADQ:NFLX) subscription.
Although Roku isn’t currently profitable, at least the company is taking specific steps to improve its bottom line. If Roku follows through with reduced expenditures and enhanced sales in the coming quarters, ROKU stock should have a lengthy runway to higher prices, in my opinion.
A Disappointing Day for ROKU Stock – Or Was It?
I must admit that I was pretty excited when ROKU stock burst 11% higher after the opening bell rang on Wall Street this morning. However, the stock only finished about 2.9% higher. This wasn’t Roku’s fault, though, as the market was generally dumping tech stocks throughout the day.
In any event, mature investors should focus on the long game, not intra-day share-price action. For example, DA Davidson analyst Tom Forte recently raised his price target on Roku stock from $81 to $100 and maintained a Buy rating on the shares. According to TheFly, Forte cited Roku’s innovative advertising efforts, including the company’s partnership with Shopify (NYSE:SHOP).
For a hot minute, it looked like ROKU stock might actually reach Forte’s $100 price target today. That’s not in the cards, though, so investors will need to be patient. Still, patience could pay off big-time, as Roku just delivered a cost-cutting action plan along with an earnings beat.
Roku’s second-quarter 2023 net loss of $0.76 per share might not sound spectacular, but it’s a lot better than Wall Street’s call for a loss of $1.27 per share. In addition, Roku reported $847 million in revenue, up 11% year-over-year and a perfectly respectable result, if you ask me.
Building Up by Cutting Back
Perhaps these decent quarterly results prompted Macquarie analyst Tim Nollen to reiterate his Outperform rating on ROKU stock and publish a $93 price target on it. Plus, there’s another bullish consideration — Roku’s specific plan, revealed in a Form 8-K filing, to “implement additional measures to continue to bring down its year-over-year operating expense growth rate.”
In other words, Roku is getting serious about reducing its financial outlays this year. That’s a welcome development since generating strong revenue is only part of the equation; cutting costs is just as important in the final analysis.
Don’t get the wrong idea. Roku certainly expects to generate robust revenue. Compared to the company’s previous projection of $815 million in current-quarter revenue, Roku now expects to generate revenue of $835 million to $875 million for the third quarter.
However, it’s also encouraging to learn that Roku’s management knows exactly what needs to be done to cut costs in 2023. Specifically, the company plans to reduce its “office space utilization,” perform a “strategic review of its content portfolio,” reduce “outside services expenses,” slash its workforce by “approximately 10%,” and limit new hires. These measures may be uncomfortable in the short term, but they’re probably necessary in order to improve Roku’s balance sheet.
Is ROKU Stock a Buy, According to Analysts?
On TipRanks, ROKU stock comes in as a Moderate Buy based on eight Buys, eight Holds, and two Sell ratings assigned by analysts in the past three months. The average ROKU stock price target is $81.50, implying 5.4% downside potential.
If you’re wondering which analyst you should follow if you want to buy and sell ROKU stock, the most accurate analyst covering the stock (on a one-year timeframe) is Jason Helfstein of Oppenheimer, with an average return of 67.1% per rating and a 69% success rate. Click on the image below to learn more.
Conclusion: Should You Consider ROKU Stock?
There’s plenty of headroom between the current Roku share price and its 2021 high. I’m not suggesting that the stock will reclaim its prior peak this year, but it feels like there’s a favorable risk-to-reward balance here.
Moreover, Roku’s management envisions strong current-quarter sales and is implementing a slew of cost-cutting measures throughout the year. Consequently, I feel that investors should consider ROKU stock for a buy-and-hold position.
