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Corner Turned? Roku Earnings Finally Show Signs of Sustained Growth Ahead

Published 17/02/2023, 05:55 am
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Shares of Roku (NASDAQ:ROKU) are trading higher on Thursday after the streaming device and platform company reported better-than-anticipated Q4 earnings and said it continues to see growth in its platform business.

Roku reported revenue of $867.1 million in the fourth quarter, relatively flat compared to the same period last year, but above the analysts’ estimates of $801.69 million. The company posted a net loss of $237.2 million, or $1.70 per share, compared to a $23.7 million net income in the year-ago quarter, while analysts were expecting a loss per share of $1.73, according to Refinitiv.

Roku said:

“Despite tightening advertising budgets in Q4, ad spend on the Roku platform outperformed the overall ad and traditional TV markets in the U.S.”

Rising Number of Active Users

Roku’s operating losses in the quarter increased to $249.9 million, marking a 1,270% decline compared to Q4 2021 when the company posted an operating income of $21.4 million. Despite growing operating losses, Roku’s shares closed the Wednesday session up 12% on strong revenue figures.

Moreover, the company reported more than 70 million active users in the three-month period, up from 65.4 million active accounts in the prior quarter. For comparison, Roku rival Tubi reported 64 million monthly active users in its recent quarterly report.

The San Jose, California-based company reported 23.9 billion total streaming hours in the quarter, up 23% year-over-year. Total streaming hours for the full fiscal 2022 stood at 87.4 billion.

Roku’s platform business was the biggest contributor to the company’s revenue growth, whereas its device business saw an 18% decline compared to last year amid tepid holiday sales.

As for the ongoing Q1 2023, Roku said it expects the net losses to drop slightly to $205 million. The company also expects its net revenue and gross profit to reach $700 million and $310 million, respectively.

In its letter to shareholders, Roku said it aims to improve its operating expense profile in a bid to weather a “challenging macro environment, while building on our platform’s monetization and engagement tools and partnerships.”

"Through a combination of operating expense control and revenue growth, we are committed to a path that delivers positive adjusted EBITDA for full year 2024,” it added.

Roku said its operating system (OS), which will power the company’s upcoming Roku-branded TVs, increased to 38% of units sold in the fourth quarter in the US, making its OS one of the top-selling TV operating systems in the home market.

Finally a Positive Earnings Report

The latest earnings report marks a vital rebound for Roku after the company warned in November that it expects Q4 revenue of roughly $800 million, sending its shares down more than 20%.

The company added 2.3 million subscribers in the previous quarter, while its streaming hours on the Roku Channel surged 90% during the period. Roku’s Q3 2022 revenue grew 12% YoY to $761.4 million, topping the consensus estimates. Net loss stood at $122.2 million, or 88 cents per share, narrower than Wall Street estimates of a net loss per share of $1.28.

More recently, the digital media player maker teamed up with a couple of renowned companies to grow its streaming business. Most notably, Roku closed a deal with Warner Bros. Discovery (NASDAQ:WBD), securing 2,000 hours of popular movies and TV shows such as “Westworld,” “The Bachelor,” and “Cake Boss,” among others.

Warner Bros also inked a similar deal with Tubi, making it the latest media company to foray into free, ad-supported streaming TV. The streamers said they plan to use the new content to launch Warner Bros-branded, free, ad-supported TV channels (FAST).

Fox Corp's (NASDAQ:FOXA) Tubi said it intends to roll out 11 channels, categorized by genre, to feature baking competitions, and an additional three channels. The deal represents a major change in Warner Bros Discovery’s approach to streaming, which previously used to reserve the studio’s movies and TV shows for the HBO Max subscription platform. This is the first time the studio has begun selling its titles to third parties.

Discovery’s streaming business, including HBO Max, lost $1.38 billion in the first nine months of 2022, prompting the studio to look for other revenue streams. Research firm nScreen Media estimates ad revenue on FAST channels to hit $4.1 billion in 2023.

Veteran TV executive Evan Shapiro said streaming is “the fastest growing segment of the viewing economy.”

“There are people who think it’s basically going to eclipse cable before too long,” he added.

Numerous major media companies have launched FAST Channels in the past year, including AMC Networks (NASDAQ:AMCX), Comcast Corp's (NASDAQ:CMCSA) NBCUniversal and the National Hockey League.

Summary

Roku shares trade higher this week after the video-streaming company finally managed to deliver results that topped analysts' expectations. Investors will now hope that the management will continue to execute well after shares fell over 80% in 2022, including a 31.5% drop in December.

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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

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