ROKU Q4 Earnings Beat Estimates, Active Accounts Jump Y/Y

Roku (NASDAQ:ROKU) reported fourth-quarter 2018 adjusted earnings of 5 cents that beat the Zacks Consensus Estimate by couple of cents. However, the figure declined 16.7% year over year.

Revenues soared 46.5% from the year-ago quarter to $275.7 million. The figure was much better than the Zacks Consensus Estimate of $263 million.

Active Accounts were up 40% year over year to 27.1 million. Streaming hours increased by 3 billion year over year to 7.3 billion. Moreover, Average Revenue per User (ARPU) increased 30% to $17.95 (on a trailing 12-month basis).

Roku ended 2018 with 27.1 million active accounts, courtesy of impressive retail execution and strong holiday sales for both players and TVs.

Quarter Details

Platform revenues (54.9% of revenues) surged 77.2% year over year to $151.4 million. Player revenues (45.1% of revenues) increased 20.9% from the year-ago quarter to $124.3 million.

Player units were up 30% year over year, with maximum growth in the below $50 category, primarily due to which average sales price (ASP) declined 8%.

Gross margin contracted 170 basis points (bps) on a year-over-year basis to 59.3%. While Platform segment gross margin contracted 230 bps, Player gross margin declined 710 bps.

Operating expenses as percentage of revenues increased 480 bps from the year-ago quarter to 38.7%. Research & development (R&D), sales & marketing (S&M) and general & administrative (G&A) expenses increased 190 bps, 240 bps and 50 bps, respectively.

Adjusted EBITDA as percentage of revenues increased 120 bps to 8.9%.

Operating margin contracted 310 bps from the year-ago quarter to 2%.

Balance Sheet & Cash Flow

As of Dec 31, 2018, cash and cash equivalents including short-term investments were $197.7 million compared with $177.3 million as of Dec 31, 2017.

Operating cash flow was $13.9 million in 2018 compared with $37.3 million in 2017.

Guidance

For 2019, Roku expects revenues of $1 billion, up 36% year over year. Platform revenues are expected to represent almost two-third of total revenues.

Gross profit is projected to grow 36% to more than $450 million. GAAP operating expenses are anticipated to be $535 for the full year.

For first-quarter 2019, which is Roku’s seasonally softest quarter from a revenue perspective, the top line is expected to decline 32% sequentially to $188 million.

Gross profit of almost $88 million at the midpoint is expected to be more than offset by higher operating expenses, resulting in an adjusted EBITDA loss of roughly $10 million.

Zacks Rank & Stocks to Consider

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

NTN Buzztime (NYSE:NTN) , Nexstar Broadcasting Group (NASDAQ:NXST) and TEGNA (NYSE:TGNA) are better-ranked stocks in the same industry. All three have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for both Nextstar Broadcasting Group and TEGNA is 10% and for NTN Buzztime is 20%.

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