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Roku Collapses Despite Beating on Revenue and Earnings in Q3

Shares of streaming device maker Roku were tanking following the company’s third quarter financial report despite beating on both the top and bottom line. The stock had one of its worst trading days on record.

For the third quarter, Roku reported a loss per share of 9 cents while analysts were waiting for a loss of 12 cents. Revenue at $173.4 million was also ahead of the $169.1 million that was expected. Additionally the company reported 23.8 million active accounts versus the 23.1 million expected.

The sell off may have been the result of the company’s platform segment revenue falling behind expectations and the fact that the company isn’t making as much as money as expected. Average revenue per user was expected to be $17.44 while Roku reported only $17.34.

Looking ahead Roku has guided for revenue in the range of $722 million to $732 million for the full year. This is an increase from the previous outlook of $710 million to $730 million. Analysts are waiting for $722.8 million.

The company however said it was “thrilled with the results.” CEO Anthony Wood said on the earnings call, “We had an outstanding quarter and I believe that we are on-track to reach or exceed $500 million in revenue this year, a big milestone for Roku. We are more excited than ever about our streaming platform, our competitive position in the industry, and a massive shift of the TV ecosystem to streaming.”

He added, “Almost 90% of our gross profit comes from our advertising, audience development, and content distribution services in our platform segment. This segment is driving our strong gross profit and revenue growth.”

Several analysts were supporting the stock with William Blair analyst Ralph Schackart calling the sell off an “overreaction” and said, ““Management indicated that this quarter, video ad sales more than doubled, and have been consistently strong for several quarters. Content distribution, which includes revenue sharing from SVOD [streaming video on demand] and TVOD [TV on demand] purchases on the platform, is a little lumpier due to revenue recognition and grew closer to account growth.”

Wedbush analyst Michael Pachter also reiterated an “outperform” rating on the shares and said, “We continue to believe in Roku’s growth potential and that the company will, in fact, reach profitability as early as next year,” wrote Pachter, who kept his $65 price target intact. “Therefore, we think the recent pullback in Roku’s share price presents a compelling opportunity to build a position.”

KeyBanc Capital Markets analyst Evan Wingren also rated the stock an “overweight” with an $81 price target.

Shares of Roku have gained over 150% in the past year.

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