Roku (ROKU) is down 23.3% since last earnings report: can it bounce back?


A A month has passed since the last earnings report for Roku (ROKU). The stocks lost about 23.3% over the period, underperforming the S&P 500.

Will the recent negative trend continue until the next earnings release, or is Roku about to break out? Before we get into how investors and analysts have reacted lately, let’s take a quick look at the latest earnings report to get a better grip on the key catalysts.

ROKU Q4 achieves top earnings estimates, income from advertising

Roku reported earnings of 49 cents per share for the fourth quarter of 2020. The Zacks Consensus Estimate saw a loss of 5 cents per share. The company had reported a loss of 13 cents per share in the same quarter of the previous year.

Revenue rose 58% year over year to $ 649.9 million, beating the consensus mark by 4.5%.

Active accounts grew 39% year over year to 51.2 million, driven by the popularity of Roku streaming players and Roku TV models in both the United States and international markets. In 2020, Roku OS was the No. 1 smart TV operating system in the United States, accounting for 38% of smart TVs sold.

Additionally, average revenue per user (ARPU) increased 24% to $ 28.76 (on a 12-month basis) as a result of increased engagement per user and continued investment in channel distribution, content advertising, billing and advertising opportunities.

Top line details

Platform revenue (72.5% of revenue) grew 81.5% year over year to $ 471.2 million, driven by the popularity of the new live TV channel guide, now spanning over 175 channels. The company added more than 50 linear channels during the quarter.

According to management, The Roku Channel reached households of an estimated 63 million people in the fourth quarter. In addition, the Roku platform was the most popular streaming platform with a 41% share of streams, which is almost equal to the next three platforms, according to a study by Conviva cited by Roku.

In addition, coverage of the Inauguration and Election Day of the President on the Roku Channel drew record audiences.

Notably, the Roku Channel has grown more than twice as fast as the Roku platform as a whole, both in terms of streaming hours and based on active account coverage. Roku users streamed 17 billion hours in the fourth quarter, up 55% year over year.

The launch of third-party streaming channels later in 2020, including Peacock from NBCUniversal, Disney + and HBO Max from WarnerMedia, as well as continued investments in The Roku Channel, all contributed to the growth of the engagement.

In addition, content distribution benefited from an increase in subscription registrations, film rentals and purchases, and higher revenue from increased device sales.

Roku launched NBC News on the Roku Channel in time for the final presidential debate and expanded the overall reach and monetization of NBC News alongside its standalone NBC News app on the Roku platform.

The company also benefited from reallocating ad spend towards streaming TV as marketers accelerated their shift from traditional television to streaming TV. While retailers spent 7% less on traditional TV advertising year over year in the fourth quarter, retail advertising spending on the Roku platform more than doubled.

In the fourth quarter, monetized video ad impressions more than doubled year over year as advertisers increasingly followed users from traditional pay-TV to streaming. Product innovations in solutions such as the Shopper Data Program with Kroger continued to contribute to growth.

Notably, the six largest agency holding companies more than doubled their investments with Roku in the fourth quarter year-over-year, while also committing to significantly larger advance payments for 2021 with Roku.

Player revenue (27.5% of revenue) increased 17.9% year over year to $ 178.7 million.

Operational details

The gross margin rose 770 basis points (bps) year-on-year to 47%.

Operating expenses as a percentage of sales fell from 43.5% in the same quarter of the previous year to 37%. The increase in the workforce and in sales and marketing expenses (S&M) led to higher operating expenses.

S&M, research and development (R&D), and general and administrative (G&A) spending decreased 20 basis points, 460 basis points and 170 basis points, respectively.

Adjusted EBITDA was $ 113.5 million for the fourth quarter, compared to $ 15.1 million for the year-ago quarter.

Operating income for the quarter was $ 65.2 million. The company reported an operating loss of $ 17.8 million for the year-ago quarter.

Balance sheet & cash flow

As of December 31, 2020, cash and cash equivalents, including current investments, were $ 1.09 billion compared to $ 1.04 billion as of September 30, 2020.

Guidance

Roku stated that the first quarter follows the trend of being the seasonally weakest quarter from a sales perspective, with sales around 25% lower sequentially, followed by a seasonally strong fourth quarter.

The company expects similar seasonality in the first quarter of 2021, with the mean total net sales of $ 485 million representing a 51% year-over-year increase.

Additionally, the platform’s gross profit is expected to be $ 238 million in the first quarter.

How have the estimates changed since then?

It found that the revision of the estimates was trending upwards over the past month. Due to these changes, the consensus estimate has shifted by 50.95%.

VGM results

Right now, Roku has a great growth value of A, a grade with the same score on the dynamic front. However, the share was rated F in terms of value and is therefore in the fifth quintile of this investment strategy.

Overall, the stock has an aggregated VGM score of C. Unless one strategy is your focus, this rating should be your interest.

outlook

Estimates for the stock are trending up, and the extent of these revisions looks encouraging. Notably, Roku has a Zacks rank of # 3 (Hold). We expect the stock to return inline over the next several months.

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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