Roku Stock Is Tumbling After Strong Earnings. Here’s Why.

Roku stock was down 15% on Friday. (Dreamstime)

Roku stock was falling sharply on Friday, even after the streaming company reported better-than-expected second-quarter financials.

Roku reported second-quarter earnings per share of 7 cents after the stock market closed on Thursday. That trounced the Wall Street consensus estimate for a loss per share of 15 cents, according to FactSet, and jumped from last year’s loss per share of 24 cents. Revenue in the quarter of $1.11 billion also beat the estimate for $1.01 billion, and rose 15% from the same period last year.

“We’re very happy, excited with the quarter,” CEO Anthony Wood said on the earnings call. “But I’d just say, what I’m most focused on is what the results are telling us, which is that our strategy to grow our Platform revenue is working.”

Platform revenue, which includes advertising and subscription fees, climbed 18% to $975.5 million from last year.

Devices revenue, the sale of Roku hardware, declined 6% in the quarter to $135.6 million. And while Roku expects platform revenue to increase to $4.08 billion for the year, above the company’s prior estimates for $3.95 billion, it expects devices revenue “to be slightly down, mostly due to tariffs.”

President Donald Trump announced a handful of new tariff policies Thursday night. That, along with disappointing labor market data on Friday, caused the market to drop. The S&P 500 was off 1.7% on Friday.

Pivotal Research Group analyst Jeffrey Wlodarczak told Barron’s on Friday that assuming device costs rise because of tariffs, it’s “not that big of a deal as their business is driven by advertising and the move away from traditional pay TV toward streaming.” He raised the target price on Roku stock to $120 on Thursday from $100, and has a Buy rating on shares.

Wedbush analyst Alicia Reese agrees.

“While Roku is not immune to the impact of tariffs this year, it can more than offset this with platform growth,” Reese wrote in a Friday report. She raised her price target on Roku stock to $110 from $100 and maintained an Outperform rating.

Shares of Roku were falling 15% to $79.98. The stock move might look puzzling after the company reported such strong results, but with a five-year beta of 2.05, Roku has proven to be more than twice as volatile as the stock market.

Pivotal’s Wlodarczak also told Barron’s that he would attribute most of the stock’s downturn to “broader market action today as the market seems to have used weak jobs and more tariff news to dump names that have outperformed materially.” Roku stock is up 8.8% this year and 52% over the last 12 months.

Write to Angela Palumbo at angela.palumbo@dowjones.com