I recently wrote a report analyzing the future of Roku in 2020. My guess is investors will get Roku’s story wrong again this year as the company must choose between its top line and bottom line.
Covid-19 offers an important opportunity for Roku as OTT usage is skyrocketing and the company must expand globally for long-term growth. In the earnings report this week, Roku gained 2.9 million incremental active accounts, or a 37% increase year-over-year to 39.8 million total, and streaming hours increased by 1.6 billion to a record 13.2 billion, or a 49% increase year-over-year.
Oppenheimer analyst Jason Helfstein cut the price target from $165 to $110. He forecasts Q2 ad platform growth to be around 18% YoY from the previous estimate of 62% growth. Among the positives, AVOD views are expected to grow 50% and streaming hours increase by 22%.
Roku had released a preview of Q1 results on April 13, 2020 with revenue in the range of $307 to $317 million. The company came in at $321 million in revenue with a loss per share of -$0.45 EPS.
Prior to earnings, Needham forecast one or two more quarters of ad weakness, with ad growth uncertain in 2021. Analyst Laura Martin (who has a strong track record on Roku) said Roku may be able to withstand the storm. “A key thing that differentiates Roku in this environment is that it doesn’t set its ad-prices at auction,” Martin said in a Tuesday note. “It uses a direct sales force to set negotiated prices, just like traditional linear-TV. We believe that, even though ad-demand has been falling, Roku is still charging $30 + CPMs, and instead, is cutting the number of ads it runs per hour.”
For Roku, it matches the same growth we saw in Q1 of 2019, which shows the continued demand in this growing space. Roku estimates 39.8 million active users as of March 31, 2020, which is a net increase of 3 million since December 31, 2019.
Furthermore, Roku estimates streaming hours of 13.2 billion, which is a 49% YoY increase. Gross profits were in the range of $139 to $144 million, which suggests a growth of 40% YoY, while net losses were in the range of $60 – $55 million, compared to a net loss of $9.7 million for the same period last year.
As Roku scales internationally, profitable earnings are not expected within the next year. I discuss this in more detail in the full-length article below.
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