Roku’s Stock Faces Huge 17% Price Swing on Results

Roku Inc.'s (ROKU) stock is about to go on a wild ride, according to the options market, following its quarterly results after the close of trading on Wednesday. Options set to expire on May 18, are implying a 17% price swing after the results. That is a significantly higher level of volatility than traders were anticipating ahead of Amazon and AMD's earnings reports of 10% and 14%, respectively.

Roku's stock was one of the hottest in 2017, with shares rising by nearly four-fold from its IPO pricing of $14 to a peak of about $56 in the middle of December, but now shares are nearly 40% off those highs. Shares got walloped after the company reported fourth-quarter 2017 results on Feb. 21, indicating first-quarter revenue guidance would be weaker than anticipated by analysts. Since the results in February, shares have fallen by 34%.

ROKU data by YCharts

Big Price Swing

Shares of Roku declined by nearly 18% the day following its last set of quarterly results, adding additional levels of volatility to an already volatile stock. It's no wonder why options traders are pricing in such a massive level of volatility ahead of the results on Wednesday. The long straddle options strategy set to expire on May 18 are implying a rise or fall of about 17.5% from the $33.5 strike price, putting the stock in a trading range of $27.80 to $39.20, versus the stock’s current price around $33.60.

The implied volatility level for those same options is nearly 123%, almost 9.5 times more than the S&P 500 implied volatility of 13%. It suggests shares of Roku could have a one standard deviation move of 20%, even higher than what the long straddle option strategy implies. Make no mistake, the options market is pricing in a very steep move in Roku. 

Analyst Estimates

Analysts are forecasting Roku's revenue to climb 27.5% to $127.55 million in the first quarter, up from $100.09 million from a year ago, while reporting a loss of $0.16 per share. But perhaps even more important will be what the company says regarding Roku's number of active accounts, which finished the fourth quarter at 19.3 million, and average revenue per user of $13.78.

Looking Ahead

Second-quarter guidance will play a major part in where the stock goes following results. Analysts are looking for revenue to climb to $135.63 million in the second quarter, with a loss of $0.15 per share 

ROKU Revenue Estimates for Current Quarter data by YCharts

Roku’s results, whether good or bad, will result in a stock price that is likely to swing massively one way or the other.