Roku (ROKU (opens in new tab), $56.88) reported third-quarter earnings earlier this month. The initial reaction from investors sent its shares down nearly 6%. However, since its Nov. 9 low of $47.31, ROKU stock has bounced more than 20%.
The main reason behind Roku stock’s big rebound is a rally in the broader equities market, sparked by hope that a recent cooldown in inflation could have the Fed easing back on rate hikes. In particular, beaten-down growth stocks were in favor earlier this month, with the tech-heavy Nasdaq up more than 5% since the Nov. 8 close, compared to the S&P 500’s 3.4% gain.
However, excitement could also be building around some major management changes at the company, which hired industry veteran Charlie Collier to lead Roku Media.
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Do these recent management changes make Roku stock a buy? That depends on who you talk to.
Roku Brings on a Rainmaker In Roku’s Q3 2022 shareholder letter, CEO Anthony Wood and Chief Financial Officer Steve Louden referred to some of the executive changes at the company. Most notably is the addition of Charlie Collier as head of Roku Media.
Collier came to Roku from Fox Entertainment, where he served as CEO. There, he was tasked with rebuilding its entertainment strategy after the separation of 21st Century Fox. Moves while at Fox included buying TMZ, acquiring MarvVista Entertainment and partnering with Gordon Ramsay to produce new content.
Before Fox, he was a big part of AMC Networks’ growth. He served as president of the cable network from 2008 until his departure to Fox in late 2018. Collier was responsible for hits such as “Mad Men” and “Breaking Bad” while at AMC.
His role at Roku is to grow ad sales, something he’s very familiar with, having started his career in advertising before moving on to running entire media organizations.
“With respect to the entire role, and the entire business I’m running, I grew up in advertising before getting into general management and programming and eventually running full ad-supported media organizations. That’s what I did,” Collier told Variety (opens in new tab) on Nov. 10 in his first official interview as a Roku employee.
“And then I look at this. And I think, I never had a direct consumer relationship, and strong first-party data,” he said in the interview. “And I’ve never had the platform, the user experience – the UX – to drive audiences exactly where those looking to engage those audiences with advertising want them to be.”
Ads Continue to Move to Streaming As Collier sees it, before too long, most television will be streamed and nonlinear, pushing most television advertising onto streaming platforms like Roku. He also believes that working at Roku enables him to help more than 250 of its content partners grow their businesses through “meaningful partnerships.”
In the Q3 earnings call, Roku CEO and founder Anthony Wood spoke candidly about Collier’s hiring and potential impact on Roku Media.
“We built our media business to a big business, a very large business. But it’s got so much more potential and it can be a lot bigger. And that’s why we recruited Charlie to help take us to the next level. So I’m sure he’ll bring some new insights and strategies and ways of thinking that we weren’t thinking before and love to see what happens,” Wood stated on Nov. 2.
Collier’s been successful wherever he’s worked. The business media talk about transformational acquisitions. Collier is that.
Oppenheimer analyst Jason Helfstein (Outperform, the equivalent of a Buy) says that while ROKU stock “continues to frustrate investors,” the hiring of Collier creates a “pivotal juncture” for the streaming company. Without getting into the weeds, Helfstein believes third-party demand-side platforms, under Collier’s leadership, could be able to bid on The Roku Channel ad inventories in the future.
That effectively widens the revenue funnel for Roku.
The company’s Q3 2022 shareholder letter admitted that the business faces economic headwinds in the fourth quarter and into 2023 – and that’s likely part of the reason Roku became the latest tech company to announce layoffs, saying on Nov. 17 that it will cut 200 U.S. jobs. However, management maintains that the secular shift to streaming is intact.
Over the past four quarters, Roku’s active accounts have grown by 16% to 65.4 million, streaming hours have increased by 21% to 21.9 billion, and ARPU (average revenue per user) is up 10% to $44.25.
Roku’s growth story remains on track as long as these numbers continue to move higher.
Not everyone is as optimistic as Helfstein, though. “With macro uncertainty for the ad market & the competitive nature of operating system and consumer hardware space, we take a more conservative view,” says Jefferies analyst Andrew Uerkwitz, who initiated coverage on ROKU stock with a Hold rating and $45 price target in mid-November. Uerkwitz believes the streaming platform’s ad monetization is under pressure and likely to fall in the coming months.
So what does this mean for investors?
On one hand, they might want to sit on the sidelines as the streaming giant braces for a slowdown in near-term advertising spending. On the other hand, Roku stock may be cheap enough for some investors to bite, especially after the company made key management changes in recent months that should position it for future growth. Indeed, following its 75% year-to-date decline, ROKU stock is now trading at a price-to-sales multiple of 2.5, well below its five-year average of 12.5.