A month has gone by since the last earnings report for Roku (ROKU). Shares have lost about 24.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Roku due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Roku Q1 Loss Narrower Than Expected, Revenues Up Y/Y
Roku reported first-quarter 2020 loss of 45 cents per share that was narrower than the Zacks Consensus Estimate of a loss of 47 cents. The company had reported loss of 9 cents per share in the year-ago quarter.
Revenues soared 55.2% from the year-ago quarter to $320.8 million and comfortably beat the consensus mark by 3%.
Active accounts jumped 37% year over year to 39.8 million. Streaming hours increased 49% year over year to 13.2 billion. Moreover, average revenue per user (ARPU) grew 28% to $24.35 (on a trailing 12-month basis).
Platform revenues (72.5% of revenues) surged 73.4% year over year to $232.6 million. Premium subscriptions in The Roku Channel witnessed a surge in signups, as consumers took advantage of more than 25 extended free trials amid lockdown in the first quarter.
Per management, The Roku Channel reached households with an estimated 36 million people in the first quarter. The Global Citizen’s One World: Together at Home special drove the largest single day of live viewing in the history of the channel.
Moreover, consumption of ad-supported video on demand content grew faster than overall platform growth.
However, the company witnessed an increase in video ad campaign cancellations or delayed starts throughout March, primarily from categories including travel, quick-serve restaurants, theatrical and automotive among others, hardest hit by stay-at-home policies.
Player revenues (27.5% of revenues) increased 21.7% from the year-ago quarter to $88.2 million. Player unit sales were up 25% year over year, primarily attributed to growth in core retail channels of the company.
Average sales price (ASP) declined 7% due to the company’s strategy of offering attractive discounts to players.
It witnessed strong unit sales of Roku TV in the reported quarter. In January, Roku entered the Brazil market with Roku TVs manufactured and sold by AOC. The company witnessed tremendous initial sales and response in the country.
The company believes that Roku TV represented more than one in three smart TVs sold in the United States and more than one in four smart TVs sold in Canada in first-quarter 2020.
Gross margin contracted 480 basis points (bps) on a year-over-year basis to 44%. Decline in ASPs affected gross margin.
Operating expenses, as a percentage of revenues, increased 720 bps from the year-ago quarter to 61.2%. 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 increased 490 bps, 60 bps and 170 bps, respectively.
In the first quarter, adjusted EBITDA declined 9.9% year over year to $16.3 million.
Operating loss was $55.2 million in the reported quarter. The company had reported an operating loss of $10.7 million in the year-ago quarter.
Balance Sheet & Cash Flow
As of Mar 31, 2020, cash and cash equivalents including short-term investments were $588.3 million compared with $515.5 million, as of Dec 31, 2019.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -31.58% due to these changes.
At this time, Roku has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Roku has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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