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Roku Stock Has a Lot to Prove on Wednesday

The brief yet wild roller coaster that Roku (NASDAQ: ROKU) has been in its first few weeks of trading should continue in the coming days. The set-top streaming-video player pioneer reports fresh financials after Wednesday's market close, and the stakes are high as Roku gears up to make a good first impression.

Everyone seems to be on board with the notion that Roku will post a third-quarter loss. It has yet to post a profit, and doesn't appear to be on its way to doing so anytime soon. The disparity is wide among the first batch of Wall Street pros to attempt to model Roku's performance. Analysts see a loss per share as wide as $4.88 and as narrow as $0.22. The consensus target is a deficit of $1.40 a share, but reality could swing wildly on either side of that estimate. 

There is tighter agreement on the top line. The four major analysts offering up revenue forecasts are wedged between $105.8 million and $112.9 million with an average of $110.5 million. They all see Roku's results landing well ahead of the $89.1 million that it scored during the third quarter of last year, or 24% growth at the consensus mark -- in line with the 23% top-line growth that Roku has delivered through the first half of 2017. 

Image source: Roku.

Thinking outside the box

Roku stock has cooled since soaring 68% on its first day of trading and peaking at $29.80 during its second day on the market. The stock has already shed more than a third of its peak value heading into Wednesday afternoon's big report, but it's still trading well above its IPO price of $14. 

Most of the seven firms that served as underwriters for the late September offering initiated coverage of the stock with neutral ratings four weeks later. This isn't necessarily a surprise, as the stock was trading in the low $20s and they had priced the deal at $14. However, two of the underwriters did go with bullish market calls. 

Ralph Schackart at William Blair tagged it with an outperform rating, arguing that the over-the-top market is expected to grow at an 11% compound annual rate through at least 2021. Laura Martin at Needham went with a buy rating and a $28 price target, encouraged by its position as a market leader that is service agnostic. She feels that the stock at a little more than three times next year's revenue forecast makes it a tempting acquisition candidate. 

Roku will have its first opportunity to woo investors as a public company in Wednesday's earnings release and subsequent conference call. It will have to make sure that it sells itself well as a software platform. Hardware sales have actually declined through the first half of 2017 with all of its growth coming from the money it makes as a middleman hooking up its growing user base with streaming services. Roku has seen its active accounts climb 43% to 15.1 million over the past year through the end of June with the average revenue per user up 35% in that time. These are the metrics that will matter perhaps even more than its lack of profitability or whether top-line growth is accelerating or decelerating. You only have one chance to make a first impression as a public company, and for Roku, that opportunity is coming soon.

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Rick Munarriz owns shares of Roku, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.