What Happened?
Shares of streaming TV platform Roku (NASDAQ: ROKU) fell 10% in the afternoon session after advertising software platform The Trade Desk announced it is developing a new connected TV operating system (OS) called Ventura, with plans to launch as early as 2025. Given Roku's strong presence in the connected television market, TTD's announcement could be perceived as a potential threat to Roku's dominance. If The Trade Desk succeeds in launching a connected TV OS, it could encroach on Roku's territory, especially considering TTD's deep expertise in programmatic advertising, a key revenue stream for connected TV platforms.
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What The Market Is Telling Us
Roku’s shares are very volatile and have had 21 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 28 days ago when the stock dropped 5% after the major indices declined (Nasdaq down 2%, S&P down 1.5%) as yields soared amid growing uncertainty about the future pace of rate cuts. Adding to the market's concern is the November 2024 presidential election, with investors still trying to figure out the potential policy direction under the next administration.
Additionally, the earnings season contributed to heightened volatility, with investors still processing weak quarterly updates from Starbucks and Boeing.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks, such as those in the technology sector, where the current value depends more on cash flows many years out in the future.
Roku is down 22.7% since the beginning of the year, and at $68.77 per share, it is trading 35.7% below its 52-week high of $106.87 from November 2023. Investors who bought $1,000 worth of Roku’s shares 5 years ago would now be looking at an investment worth $432.71.
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