I can't believe I'm saying this, Long ROKU through ER.
ROKU Bull Flags/Pennant on multiple timescales:
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ROKU has bottomed after completing A-B-C corrective wave within a long term bullish trend. ROKU is growing sales >40% y/y in a pandemic -ad sales >50%- while trading at a relatively subdued multiple to peer-metric stocks (sentiment informs multiple/valuation, not fundamentals today - get that in your head bears). After a nice move to breakout from A-B-C downward channel at $136 (without gap retest mind you - a trend that is becoming more and more familiar for those of you who like to inscribe rules into stone and not look at what the market is telling you: PYPL TWLO TSLA (so far) ZS etc) ROKU is in a bull flag, setting up for a move higher powered by earnings - right?
---Before I go on and on about this trade, I feel it best to say thatI am a ROKU bull if you couldn't tell, and the harshness of my tone is specific to this ticker as I feel it has not received proper respect (multiple) in markets relative to how market chooses to value peers. Having some fun with the 800-pound Bear in the room---
So then, Bears -hello Citron- is it lights out for you? I have a bull flag after a corrective 3 wave down which held lows, broke out of down channel, and maintained macro upward trend. GAME OVER BABY - Right?
It's setups like these that make me a bit too hesitant. I am essentially betting that ROKU will beat and raise top and bottom line and show strong demand driven by targeted ads with higher CPM due to programmatic nature of platform (quite a mouthful!) - a move ala PINS; the market has it wrong and just you wait for the multiple change when you see the metrics!
This is too binary for me, generally. If I don't get a perfect — for whatever reason, oh, you know, perhaps because GDP declined 9% sequentially or GOOGL (ad company to compare it to) just posted first EVER quarter of negative top line growth — then I'm done for. In fact, ROKU displayed exactly this activity during the downtrend channel last year through this year: it sold the -what I perceived to be- good news and looked for any metric to be bearish on. Notably the market has been overall bearish ROKU since IPO and this has been a key battleground stock. I would throw SQ in with that group as well. Battleground stocks are big opportunities and the long term TAM for ROKU as the winner(s) of the CTV market is huge. Hard to be bearish anything other than simply the idea of AMZN competing. What if there was room for a duopoly?
So, of course, the question is - is this a bull trap or the end of the battleground? Are we beginning a strong Wave 1 up, are we in the beginning of Wave 3, or are we at the top of Wave 1 and due for corrective Wave 2 before strong Wave 3 to new highs? (Any -forex?- people that can give insight into my narrative would be appreciated. Just completely tear me apart, that's what'd I'd like: through destructive growth births.)
Ok so I'll solve for X. I don't care what the reaction is to the downside because I am fundamentally long the company for years, not just for this ridiculously binary trade (which you'll see, I am in for the speculation, of course), I just need to manage risk well enough that I don't get killed in any knee-jerk pullback that was a bull trap (ala ER in February).
To manage risk I cut shares of ROKU and am short Sept $150 puts at cost of $14 as replacement for my stock. Then, I bought August 180c for $5 as a speculative leg of the trade. Net credit is $9 with put sell breakeven above $136 (breakout level) and net b/e above $139 (Also am happy to roll down/out put sells if quarter was a dud). Potential gain is $14 on the sells + difference between realize Aug21 price & b/e which is $185. Stock breaking out to new highs would be above $176.55. With the bull flag that is setting up, I would not be surprised to see a gap to this level and run to $200 on a nice print. $210 even seems in the cards on a change of sentiment but again this is highly speculative and not likely, especially considering ROKU's history. If the print is truly a blowout I'll go into the aftermarket and pick back up my shares there.
Happy trading all and always manage risk. Managing risk is what makes trades like this possible to me.
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This trade went more or less as expected. Took the hit on the calls but net flat overall as sept put sells are up. Looking to go long ROKU before $150 for accumulation with $47.50 my low support target.
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Update time
ROKU breakout is in full force. We held $142 & bounced back above $147.50/$150 on a huge 4 day run to take us to nearly new highs. I am looking for A LOT more from ROKU over the future. My price target may seem ridiculous at this point in time but I maintain that long term ROKUSQTSLA will be the next FAANG. In fact I see the potential for ROKU to greatly exceed 100B market cap over the next 3-5 years.
@ThomasLau_RS, Impossible to know but let me lay out some potential factors to you:
Bearish (The Bad first)
- Prior ER reactions have been negative, especially when it comes to bottom line. For some reason analysts like to pick on ROKU for now scaling bottom line even though growth has been accelerating steady from high 30s% to now high 40s%.
- Ad market has been difficult as seen with GOOGL. We have never been in a situation where GDP declines 9% sequentially and it is clearly affecting the ad market as it is all others.
Bullish (The Good)
- ROKU sits in an interesting position when you look at the FB/PINS narrative. PINS reported that it was seeing an increase of revenue from customers taking FB ads to other platforms. Additionally ROKU benefits from high level ad targeting or 'programmatic' ad targeting. They are able to monetize their first-party data to give deeper insight into viewers and higher CPM (clicks per thousand impressions). ROKU mentioned last earnings call that while they saw some customers pull back ad spending they saw an increase from others due to the programmatic nature of their platform. In fact, I would argue ROKU stands to BENEFIT in a HUGE way due to COVID-19 (my 2nd point as well) as ad buyers are likely looking to save money and pullback add spending. One aspect of that may be a faster migration to platforms like TTD ROKU which provide higher CPM due to programmatic nature of platform.
- Due to COVID, more eyes have been on TV as more time is spent at home. It is possible that due to this we are seeing increased demand from ad buyers to target those people watching NFLX at home on their ROKU.
Finally, I believe we can expect a beat and raise on top-line as that's what this company has conditioned us to expect. However, who knows what the bottom line will look like and how analysts will react. The general direction of my post would go long here on the speculation of a possible huge quarter while allowing yourself to buy more if it dips back to $136 support.