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Will coronavirus send Roku shares on the road to recovery?

The Roku share price spiralled from record highs in the opening months of 2020, driven by coronavirus fears. But could the pandemic also cause Roku's recovery?

Roku Source: Bloomberg

The coronavirus (COVID-19) pandemic has fundamentally altered consumer patterns across the world, with several businesses forced to halt trading as a result of governments initiating lockdown procedures.

Unable to spend at their usual rate on hospitality, leisure, and fashion, consumers are increasingly looking elsewhere for entertainment.

One industry comparatively uninhibited by the spread of coronavirus is online streaming, with people able to dedicate more time to watching content during self-isolation.

This could be reflected in streaming companies' share prices, as investors search for new reliable stocks while the virus endures. In the case of Roku (NASDAQ:ROKU), this may provide an opportunity for its share price to recover following a discouraging few months.

A sharp decline in Roku’s share price

Roku shares were trading at an all time high of 169.860 in September, the culmination of steady growth throughout the calendar year. The Roku share price six months later made for a bleak comparison, with a close of 76.130 on 16 March around 55% lower than that peak level from 2019.

Much of that decline can be attributed to the coronavirus pandemic instigating bearish patterns in major global markets, but this was not the only contributing factor. Morgan Stanley analysts downgraded the company's stock in December, taking the wind out of the sails of Roku’s share price and beginning a period of steady decline.

The spread of the virus initially masked the disadvantages of investing in Roku, but it may have also provided a new reason to do so. That 16 March low has thus far been a turning point, with Roku shares since appearing resilient at a time when markets generally remain bearish. The picture grows even rosier when considering a key factor behind that March nadir.

News that one shareholder would be selling a 5% stake in Roku hardly inspired confidence among the investment community. Those fears were alleviated when the news broke that the seller was Fox, in a sale that was no comment on the health of Roku. Rather, it allowed Fox to generate the funds required to purchase Tubi, another streaming company.

The unmasking of the seller caused Roku shares to rally strongly in the latter weeks of March, with investors no longer looking for a reason not to invest in Roku. Instead, a new question took centre stage: is this an opportunity to buy Roku shares?

Cause for optimism for Roku backers?

Roku stock has largely demonstrated great upward mobility since the company started trading publicly in September 2017, other than during the extenuating circumstances caused by coronavirus. Prospective buyers haven't had access to Roku shares at this level for several months, so this could be a potentially rare opportunity for new investors to gain exposure to the company.

With people expected to spend more time indoors for an undefined period, Roku's user base is predicted to build on the 36% annual growth achieved in 2019. Exposure to new markets also bodes well for Roku's share price, with the company's 6 April announcement of the launch of 'The Roku Channel' in the UK received well by investors.

The self-isolation measures ushered in by the pandemic may increase unit sales of Roku products, although the revenue generated by those sales could be undercut by a reduction in advertising income. While the streaming industry may be able to operate in fairly typical fashion, many of Roku's advertisers have been severely affected by the pandemic and will inevitably cut back on expenditure.

The pandemic has created a unique circumstance where Roku products can thrive, but it has also created an environment where many of its advertisers may struggle with cash flow in the short term. The longevity and severity of lockdown measures will be crucial influences on the value of Roku shares in 2020, but buyers will be hopeful that the stock is over its slump and will display traditionally bullish behaviour once more.

How to trade Roku: long or short

What do you think to Roku’s prospects? Regardless of whether you’re bullish or bearish, you can take a position on Rou and other streaming stocks using the UK’s best trading platform with IG.

To buy (go long) or sell (go short) Roku using CFDs, follow these simple steps:

  1. Create an IG trading account or log in to your existing account
  2. Type ‘Roku’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

Don’t forget you can also invest in Roku for the long term with IG’s share trading service.

Commission on US shares is £0 if you’ve traded three or more times in the previous month, or just £8 otherwise.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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