Roku stock (NASDAQ:ROKU) isn’t doing well in the market right now. Shares of the streaming TV pioneer fell to a three-year low late last week, weighed down by another negative thesis that may be incorrect, like the last one. Since its high in July of last year, the stock has dropped 87%.
This time, the stumbling block is what a protracted recession would do to Roku’s ad-supported economic model. Regardless of what Roku’s bleak stock chart suggests, that scenario did not play out either.
Market Analysis of Roku Stock
Roku shareholders have gone through a lot in the previous 15 months, but did the original pessimistic thesis hit home? Since the stock’s peak last summer, Roku stock (NASDAQ:ROKU) popularity has only risen. People have mostly enjoyed the pre-pandemic social hotspots now that immunizations are generally accessible, but they’re just going to stream more after they go home.
Clearly, there are faults here. Some gusty breezes have shattered the window. Roku stock (NASDAQ:ROKU) is back in the red this year after becoming profitable in the second half of 2020 and for the whole year of 2021. Wall Street analysts do not expect a return to profitability anytime soon. Margins have shrunk due to supply chain difficulties in its low-margin hardware sector, but more recently in its high-margin platform division. Roku is investing heavily in content to make its platform more appealing.
This gets me to the second negative thesis: ad-supported business models will suffer if consumer wallets run dry. A white glove test does not provide the same results as the initial bearish challenge. Roku’s guidance this summer was poor, and business is beginning to drop. Revenue of $700 million is expected to be an 8% sequential fall and a 3% year-over-year growth. There are growing pains here, and investors will have access to new data when Roku reports later this month.
However, don’t expect Roku to be a victim of advertisers cutting down on what they’re prepared to spend on their messages during an economic downturn. Willn’t people spend more time enjoying themselves at home on the cheap if there’s less money to go around?
Most of Roku’s ad income is generated by streaming services attempting to stand out among the hundreds of applications accessible on the platform. A weak economy will pressure second-tier services to differentiate themselves to survive. Roku should be OK in that situation.
Roku has a healthy balance sheet, with approximately three times as much cash and short-term investments as total debt. With interest rates increasing, it’s a wonderful time to be in the market. Roku stock (NASDAQ:ROKU) is presently trading at 2.4 times the trailing sales enterprise value. Earnings multiples are meaningless at this stage, but a top-line-based value has never been lower.
Considering Roku stock (NASDAQ:ROKU), a buy might be one of the wisest moves you make in this market if the out-of-favor company lives up to its growth potential.
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Author Okoro Chinedu 
