Roku (ROKU) Extends Rally After Strong Q4 Earnings

Roku, Inc. (ROKU) shares rose more than 3% during Friday's session after the streaming company posted better-than-expected fourth quarter financial results.

The company reported revenue that rose 58% to $649.9 million, beating consensus estimates by $33.4 million, while GAAP EPS of 49 cents beat consensus estimates by 54 cents. Management also issued first quarter revenue guidance of between $478 million and $493 million, which was above analyst expectations of $455 million.

In addition to the financial performance, the company reported a 24% increase in average revenue per user to $28.76 along with a 39% increase in active customer accounts to 51.2 million – both of which exceeded analyst expectations.

Benchmark reiterated its Buy rating on Roku stock and raised its price target from $410 to $600 per share following the earnings report, saying that the results provided a proof-of-concept quarter for the advertising and distribution platform thesis and blew away estimates. While Benchmark is concerned over Roku's valuation, it does not see any major obstacles ahead.

From a technical standpoint, the stock rebounded from reaction lows toward its prior highs during Friday's session. The relative strength index (RSI) moved toward overbought territory with a reading of 67.03, while the moving average convergence divergence (MACD) could see a near-term bearish crossover. These indicators point to potential consolidation ahead despite continuing optimism around the company's fundamentals.

Traders should watch for a breakout from prior highs of $486.72 over the coming sessions or consolidation above trendline support at $420.00. If the stock breaks out, traders could see a move toward channel highs of $525.00. If the stock breaks down, traders could see a move toward the 50-day moving average at $390.66, although that scenario seems unlikely to occur given the bullish fundamental sentiment surrounding the stock.

The Bottom Line

Roku shares moved sharply higher during Friday's session after the company reported better-than-expected fourth quarter financial results, but the price is moving into overbought territory.

The author holds no position in the stock(s) mentioned except through passively managed index funds.