Roku: Sell The Explosion

Shares have more than doubled since earnings.

Valuation was cheap, but not anymore.

Wait for a pullback before buying again.

Last week, I detailed how shares of streaming company Roku were ready for takeoff after the company's first earnings report as a publicly traded company. With the name handily beating estimates and a bright future ahead, I thought shares could eventually grow into a valuation in the mid single digit billions. While the name surging to that level in just a few days, investors now have to be very careful as it appears a bubble has formed.

(Source: Yahoo Finance)

My thought process was simple: as the company relied less on sales of low margin devices, the high margin and fast growing platform business would help move the name to GAAP profitability. After just under $399 million in revenues last year, current estimates call for more than $507 million this year, and the street has been scrambling to raise numbers after last week's beat. In fact, forecasts for next year now call for more than $653 million, up almost $30 million since the Q3 report. That would imply more than 60% revenue growth over two years, and the streaming business isn't going away anytime soon.

I estimated that a few years down the road, if the story played out well, Roku could eventually have a valuation that was 5-10% that of Netflix (NFLX), implying between $4.25 billion and $8.5 billion. As of November 3rd, according to the company's 10-Q filing, there were almost 98 million outstanding shares of Roku's Class A and Class B shares. That put the total valuation at nearly $4.65 billion at Monday's high, and that excludes the possibility of any future dilution from acquisitions, stock based compensation, etc.

source :https://seekingalpha.com/article/4124424-roku-sell-explosion