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ROKU Q3 Earnings Top Estimates, Advertising Revenues Rebound

Zacks Equity Research
·5 min read

Roku ROKU reported third-quarter 2020 earnings of 9 cents per share. The Zacks Consensus Estimate was pegged at a loss of 39 cents per share. The company had reported loss of 22 cents per share in the year-ago quarter.

Revenues soared 73.1% from the year-ago quarter’s level to $451.6 million and beat the consensus mark by 21.7%.

Active accounts jumped 43% year over year to 46 million driven by strong sales of players and Roku TVTM models in both the United States and international markets. Moreover, average revenue per user (ARPU) grew 20% to $27 (on a trailing 12-month basis).

Roku, Inc. Price, Consensus and EPS Surprise

Roku, Inc. Price, Consensus and EPS Surprise
Roku, Inc. Price, Consensus and EPS Surprise

Roku, Inc. price-consensus-eps-surprise-chart | Roku, Inc. Quote

Top-Line Details

Platform revenues (70.7% of revenues) surged 78% year over year to $319.2 million driven by popularity for the new live TV channel guide, which now includes over 115 channels.

Per management, The Roku Channel reached households with an estimated 54 million people in the third quarter and grew streaming hours faster than any other top 10 channel on the Roku platform on a year-over-year basis.

Markedly, The Roku Channel grew more than twice as fast as the Roku platform overall, on both streaming hours and active account reach basis. Roku users streamed 14.8 billion hours in the third quarter, up 54% year over year.

Additionally, content distribution benefited from a surge in subscription signups, movie rentals and purchases as well as elevated revenues from increased device sales.

During the quarter, the company reached a mutually beneficial agreement with Comcast CMCSA owned NBCUniversal to distribute the latter’s Peacock streaming services that include collaboration around marketing, advertising, and content for The Roku Channel.

Building on that partnership, Roku launched NBC News in The Roku Channel in time for the final presidential debate, expanding the overall reach and monetization for NBC News alongside its standalone NBC News app on the Roku platform.

Moreover, Roku benefited from advertising spend reallocation toward TV streaming as marketers accelerated their shift out of traditional TV and into TV streaming, precipitated by a 17% year-over-year drop in linear TV viewing among adults 18-49.

In the third quarter, monetized video ad impressions grew almost 90% year over year compared with more than 50% reported in the year-ago quarter. Product innovation in solutions like the Shopper Data Program with Kroger continued to drive growth.

First-time advertiser clients more than doubled year over year, driven by performance marketers using Roku’s OneView ad platform, as well as TV advertisers focused on new products offered by the company such as incremental reach guarantees.

Markedly, 97% of TV advertisers that spent $1 million or more with Roku in the third quarter of 2019 continued to invest in the reported quarter.

Player revenues (29.3% of revenues) increased 62.3% from the year-ago quarter’s levels to $132.4 million. Player unit sales were up 57% year over year, resulting in the strongest year-over-year player revenue growth in over seven years. Player sales in both Canada and the U.K. more than doubled year over year.

Operating Details

Gross margin expanded 220 basis points (bps) on a year-over-year basis to 47.6%.

Operating expenses, as a percentage of revenues, decreased to 44.9% from the year-ago quarter’s 55.6%. Growth in headcount and sales & marketing (S&M) expenses led to higher operating expenses.

S&M, research & development (R&D) and general & administrative (G&A) expenses contracted 220 bps, 670 bps and 180 bps, respectively.

In the third quarter, adjusted EBITDA came in at $56.2 million compared to negative $0.43 million in the year-ago quarter.

Operating income was $12 million in the reported quarter. The company had reported an operating loss of $26.5 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2020, cash and cash equivalents including short-term investments were $1.04 billion compared with $887 million, as of Jun 30, 2020.

Guidance

The company expects fourth-quarter year-over-year revenue growth in the mid-40% range while platform revenues are expected to account for roughly two-thirds of total revenues.

Moreover, fourth-quarter platform gross margin is expected to be in the mid-50% to 60% range.

Roku expects sequential expense growth rate to be in line with last year driven primarily by headcount and sales and marketing expense growth.

Roku withdrew its 2020 guidance due to the economic uncertainty stemming from the coronavirus outbreak.

Zacks Rank and Stocks to Consider

Roku currently has a Zacks Rank #3 (Hold).

TEGNA TGNA and Spectrum Brands Holdings SPB are some better-ranked stocks in the broader Consumer & Discretionary sector. TEGNA sports a Zacks Rank #1 (Strong Buy) while Spectrum Brands carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

TEGNA and Spectrum Brands are set to release quarterly results on Nov 9 and Nov 11, respectively.

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Comcast Corporation (CMCSA) : Free Stock Analysis Report
 
Spectrum Brands Holdings Inc. (SPB) : Free Stock Analysis Report
 
TEGNA Inc. (TGNA) : Free Stock Analysis Report
 
Roku, Inc. (ROKU) : Free Stock Analysis Report
 
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