Roku falls on weak Q1 outlook

Roku, Inc. (ROKU) shares plunged following the company's fourth-quarter results. Roku reported a loss of $0.55 which was in line with estimates and topped revenue forecasts with $984.42 million, whereas analysts expected $963.67 million. However, with competition rising, the company provided a disappointing first quarter outlook.

Yahoo Finance Media Reporter Alexandra Canal breaks down the details.

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Editor's note: This article was written by Angel Smith

Video Transcript

RACHELLE AKUFFO: All right. Also, watching Roku shares plummeting. The company forecasting a steeper than expected first quarter loss, as it struggles to compete with giants like, Netflix and Amazon for advertising dollars. Roku warning of a challenging environment for media and entertainment spending for the rest of 2024.

We have "Yahoo Finance's" Alexandra Canal here with us to break this down for us. Allie, what are you watching?

ALEXANDRA CANAL: Yeah. Pretty dire moves here in pre-market trading. Continuing the sell-off that we saw last night. And it was interesting to me considering we did see that revenue beat double-digit gains in accounts in hour streamed. But we were entering this report with elevated investor expectations.

So despite that revenue beat at $984.4 million, some investors were expecting closer to $1 billion. We also saw a slight guidance miss on gross profit for the current quarter, in addition to a 4% decline in average revenue per user or ARPU, as the company continues to focus on international markets. Although, I will say that domestic ARPU was flat to slightly up.

But there were implications that platform growth, that operating costs for the remainder of the year are going to be muted, which is leading to estimate cuts across the Street. On top of that, there's increased competition from Amazon entering the ad-supported market. I've been reading a lot of notes on the stiff competition there. Roku also dealing with ads from Netflix and Disney. So just a lot more competitors on the market.

And then Walmart reportedly buying that budget TV company, Vizio. Shares were under pressure from that news. And overall management on the call, they were saying streaming is reaching a mature-- it's maturing overall. So because of that, it's not a growth at all cost strategy anymore. They're not spending as much on media and entertainment ad dollars, which really is a big growth driver for Roku.

And then you have those macro challenges, the advertising market. It does not seem to be getting better, definitely, not on the linear TV side. A lot of the ad dollars are shifting to over the top, to streaming, which could be a benefit to Roku. But you also have all these big tech giants and all the competition entering this space.

So a mixed bag here in this earnings report. I'm also seeing mixed calls across the Street. Some are saying that Roku could benefit from being a first mover here. But it's hard, when you're dealing with a big company like Amazon. How do you necessarily compete?

RACHELLE AKUFFO: It got crowded.

- It got crowded. And even like, you mentioned, Allie, a company like Walmart, which the CEO didn't mention that potential deal on the call. Did that surprise you at all?

ALEXANDRA CANAL: It did surprise me. And it did pop up in a few analyst notes out there. That look, this is something that Roku needs to take seriously. If Walmart starts to develop their own TVs, that's a big company, too. You got your Walmarts and your Amazons. Roku is a relatively smaller company.

So they're going to have to innovate and find other ways to really bring in those ad dollars because this company is one that's been very focused on profitability. We saw decent amount of job cuts in 2023. And investors, they don't want to see this company go back to a growth phase. They really want to see them mature. They want to see them post positive EBITDA, which they did say they will do in 2024, just not at the level that investors were expecting.

So it's an interesting time for Roku. And I think 2024, it's going to be a big year for them to really figure some things out.