Roku Shares Test Support at the $5 Billion Level

Roku shares have been barreling higher since an upside earnings surprise

Jan 1, 2018 at 8:23 AM
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Roku (NASDAQ:ROKU), operator of the eponymous (and seemingly ubiquitous) streaming entertainment platform, made its Nasdaq trading debut as recently as Sept. 28, when the stock's initial public offering (IPO) priced at $14 per share. After a big two-day post-IPO rally, it was a tough slog for ROKU over the next month. From their Sept. 29 close at $26.54, the shares went on to shed 29% of their value over the next five and a half weeks.

But on Nov. 9, after a quarterly earnings report that fairly crushed expectations on the strength of significant year-over-year growth in revenue and active accounts, ROKU opened sharply higher -- and after that initial bull gap, the rally was in full swing. From its Nov. 8 pre-earnings close at $18.84, the stock has surged 175% to close Friday at $51.78. In the process of roughly quadrupling its IPO price, ROKU has barreled past a major market-cap milestone with striking ease.

ROKU's IPO price translated into an "opening" market cap of $1.3 billion, but in the wake of the equity's post-earnings surge, that metric now stands north of $5 billion. And while the stock's short history and rapid rise haven't left technical analysts with much of a foundation to work from, in terms of established support and resistance levels, the significance of the $5 billion market cap level to date is compelling.

The specific price point that marks a $5 billion value for ROKU is $51.11, based on the number of shares outstanding. The stock hit an intraday peak of $51.80 back on Nov. 28 before retreating to a slightly lower close, and then embarked on a brief period of consolidation into fledgling support at its 10-day and 20-day moving averages. ROKU's first daily close above $51.11 occurred on Dec. 15, at $52.31; two days later, the shares would set their reigning all-time intraday high of $58.80.

A brief pullback has ensued from that record high, but ROKU appears to have successfully tested support at the $5 billion level in recent sessions. After settling at $51.62 on Dec. 22, the shares fell as low as $51.01 in intraday action during the next session -- but bounced back sharply to close up more than 6% on the day. So, just about a month after the $5 billion market cap barrier was first crossed in intraday trading, this price point appears to be emerging as support for ROKU.

Along with $51.11, traders will want to keep an eye on the levels corresponding with various multiples of ROKU's IPO price. The aforementioned two-day post-IPO surge carried the shares north of $28 (double the IPO price), which immediately preceded the long, grinding slump into the pre-earnings lows. Likewise, the first cross of $42 (triple the IPO price) occurred on Nov. 13, and it took nearly a month's worth of churning before ROKU left this level in the rearview.

Now, just overhead is the "quadruple" at $56, which the shares first traded above on Dec. 18. It wouldn't be at all surprising to see ROKU chop sideways below this region during the immediate weeks ahead, but it should be very interesting to see if the big $5 billion level at $51.11 can hold up as support during the process.

ROKU daily price chart 1229

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, December 31.

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