Roku (ROKU), a streaming media access provider, reported second quarter earnings after the close on Wednesday. The company lost 35 cents per share, but analysts were expecting a larger loss of 55 cents. Revenues were also higher than expected.
So why did the stock sell off on Thursday morning? Roku says advertisers are spending less than prior to the pandemic, and will continue to do so into next year.
While investors may be concerned over decreased spending by advertisers, Roku's chart is telling a different story.
Roku has formed a massive bullish pattern known as an inverted head and shoulders. This pattern has been forming for nearly a year. I've used a weekly chart in order to show the full scope of the pattern.
According to this chart pattern, Roku is headed to $200 and beyond.
Roku users increased their viewing hours by 65% during the quarter vs. the same quarter last year. While that sounds amazing, it's a drop from the prior quarter's 80% increase.
Critics say that as economies re-open, Roku will see a drop in engagement. While there may be some truth to this, Roku is a beneficiary of the long-term move away from traditional cable TV viewing. That's a trend that started well before the Covid-19 pandemic, and one that should continue well into the future.
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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.