Streaming platform and hardware provider Roku (NASDAQ: ROKU) stock got pummeled after its Q2 2021 earnings release despite beating and guiding higher. The biggest concern has been its slowing growth rate, especially when trading at nose bleed multiples. However, the fundamentals still remain strong and the ensuing sell-off is presenting a bargain opportunity for risk-tolerant investors. The Company is still operating on all cylinders as top-line continues to grow between its platform (software/network) and player (hardware) revenues. The Company’s technology comes preinstalled in many of the largest brands of smart tv’s. The pandemic has accelerated the acceptance and migration to streaming as Roku continues to benefit from the cord-cutting phenomena. It was a pandemic winner, and the lasting efforts continue to pay off as a reopening play being a cornerstone of the “new normal”. The growth of streaming services and the battle for content enables Roku to stay a leader in the future of streaming content. Prudent and risk-tolerant investors can watch for opportunistic pullbacks on this leader play to gain exposure.
Q2 Fiscal 2021 Earnings Release
On Aug. 4, 2021, Roku reported its fiscal Q2 2021 results for the quarter ending June 2021. The Company reported GAAP earnings-per-share (EPS) profit of $0.52 versus consensus analyst estimates for a profit of $0.14, a $0.38 beat. Revenues grew 81.2% YoY to $645.1 million, beating analyst estimates for $618.35 million. The platform revenues increased 117% YoY to $532 million. Active accounts grew to 55.1 million, up 1.5 million sequentially since Q1 2021 and up 28% YoY from 43 million. The average revenue per user (ARPU) rose 46% YoY to $36.46. The Company more than doubled monetized ad videos as gross profits rose 130% YoY. Streaming hours were 17.4 billion, falling (-1 billion hours) from Q1 2021. However, Roku player units were flat YoY with an average selling price down (-2%) YoY. The Company stated, “The OneView Ad Platform provides a single solution for advertisers to manage their entire campaign — across TV streaming, desktop, and mobile — using Roku’s scale, first-party data, and measurement tools. Apparel brand Smartwool used OneView to execute a combined TV streaming and digital display advertising campaign. As a result, consumers who saw a Smartwool ad on both TV streaming and on digital display were 72% more likely to visit the Smartwool website. As a result of our demonstrated return on investment, TV streaming spend in the OneView Ad Platform accelerated, with spend nearly tripling year-over-year”
Upside Revenue Guidance
The Company raised its guidance and expects Q3 2021 revenues of $680 million versus $644.36 consensus estimates. Gross profits are expected around $320 million at the midpoint, up 49% YoY. Adjusted EBITDA is expected around $65 million as operating expenses rise sequentially for headcount, product development, and sales and marketing.
Conference Call Takeaways
Roku Co-Founder and CEO Anthony Wood set the tone, “ I am pleased to report that Roku delivered a strong second quarter with record revenue growth that was driven by exceptional performance in platform monetization. Audiences, content, and advertisers continue their shift to TV streaming around the globe. Roku is a key enabler of this long-term secular trend. This quarter, platform revenue exceeded $0.5 billion for the first time, driven by significant contributions from both content distribution and advertising activities. On the content front, we are seeing direct-to-consumer streaming services lean into our platform’s effective merchandising tools. Also, of note, at the recent upfronts, we closed commitments with all seven major advertising agency holding companies. We had a great Q2, and we are well positioned for the future.”
Roku CFO Steve Louden provided color on the quarter, “Looking ahead to the rest of the year, let me offer three key observations. First, we will take tough year-over-year comps across our business in the second half of 2021 due to pandemic-related outperformance in the second half of 2020. Second, we will also face tough comps within the year-over-year growth rates of our active accounts and streaming hours given last year’s demand spikes. And third, the secular trend towards streaming remains intact. And we will benefit from our strong position as the shift in TV streaming continues.” The slowing growth comes from comments regarding “tough comps” since the growth was so robust. However, he did try to appease concerns, “The mix shifts in TV ad budgets to streaming, combined with the launch of multiple new premium DTC services in the second half of 2020, resulted in an exceptional growth in our platform revenue during that period. While this will create tough year-over-year comps in the second half of 2021, we still expect robust growth. Second, regarding tough year-over-year comps in active accounts and streaming hours. In 2020, pandemic-related lockdowns drove a surge in active accounts and engagement. For example, active accounts and streaming hours grew nearly 80% and 100%, respectively, from Q2 2019 to Q2 2021. The surge in streaming player in smart TV sales in 2020 contributed to this growth. In 2021, we expect the overall U.S. smart TV market to shrink on a year-over-year basis, as OEMs manage supply chain challenges.” Whether they are lowballing expectations or facing a slowdown in momentum, time will tell.
ROKU Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provide a precision view of the landscape for ROKU stock. The weekly rifle chart has peaked out and promptly sold off on its Q2 2021 earnings release. Shares were selling off into the release after being lifted on takeover rumors. The sell-off bottomed out at the weekly 15-period moving average (MA) near the $381.29 Fibonacci (fib) level. The weekly uptrend stalled on the channel tightening, but the weekly market structure high (MSH) sell triggered on the collapse under $453.01 heading into earnings. The weekly stochastic crossed back down under the 80-band indicating a shift in momentum despite still being in a stalled uptrend. The daily rifle chart is in a clear downtrend with a falling 5-period MA at $410.89 as stochastic oscillates down towards the 20-band. The daily market structure low (MSL) buy triggers on a breakout back above $412.Meanwhile a daily MSH sell triggers on a breakdown below $378. Prudent risk-tolerant investors can watch for opportunistic pullback levels at the $390.71 fib, $381.29 fib, $378 daily MSL trigger, $367.66 fib, $358.31 fib, $350.45 fib, $339.89 weekly MSL trigger, and the $335.56 fib. Upside trajectories range from the $431.98 fib to the $577.09 price level.