Roku Stock Paces for Best Week of the Year After Earnings

Roku shorts may have been hedging with pre-earnings calls

May 10, 2018 at 9:57 AM
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Shares of Roku Inc (NASDAQ:ROKU) have jumped 5% to trade at $37.88, after the streaming player provider reported a first-quarter adjusted loss of 7 cents per share -- slimmer than the 15 cents per-share loss analysts were expecting. The company also brought in a better-than-expected $136.6 million in revenue, said software revenue outpaced hardware revenue for the first time ever thanks to booming ad sales, and raised its full-year forecast.

Analysts have started to weigh in on Roku after earnings. While Citigroup raised its price target on the stock to $40 from $36, Morgan Stanley said the results put the company on the fast track to a breakeven adjusted EBITDA, and D.A. Davidson called the quarter "outstanding." Not all of the attention was upbeat, though, with RBC warning ROKU may have reached full valuation, and Loop Capital noting the firm is "operating in a highly competitive field with much larger competitors."

Nevertheless, the stock is on track to close north of its 80-day moving average for the first time since Feb. 22. And given yesterday's big pre-earnings surge, ROKU is pacing toward its best week since November, up 20.9% so far. But while the shares have seemingly broken out of their tight trading range, they remain more than 35% below their mid-December record high of $58.80.

Options traders were certainly bracing for a post-earnings move to the upside. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 15,398 calls on ROKU stock in the last 10 days, compared to 9,132 puts.

However, some of this activity could've been a result of shorts initiating an options hedge against any upside risk. Although short interest plunged 20% in the most recent reporting period, there are still 6.17 million ROKU shares sold short -- representing a whopping 39.4% of the stock's available float.


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