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Can Roku's (ROKU) Free Content Channel Drive Q4 Earnings?

ByZacks Investment Research
Published 02/18/2019, 09:17 PM
Updated 07/09/2023, 06:31 AM

Roku’s (NASDAQ:ROKU) popularity driven by The Roku Channel along with its growing smart TV market share is expected to play a significant role in fourth-quarter 2018 results, scheduled to be released on Feb 21.

Roku’s free content channel, The Roku Channel, is attracting users and improving their engagement on the platform. As a number of users are increasingly shifting toward over-the-top (OTT) services, a free channel is most likely the first choice for them. This is supported by the fact that about 43% of new Roku users chose Roku device owing to the availability of the free channel, per management.

Roku, Inc. Price and EPS Surprise

Roku, Inc. Price and EPS Surprise | Roku, Inc. Quote

Additionally, Roku Channel’s solid content portfolio, which includes movies, TV shows and news channels are proving beneficial to attract users. Moreover, higher user base will attract more ad dollars, which is one of the main revenue generators for Roku. Notably, video ads and brand sponsorship advertising contributed majorly to Platform revenues in third-quarter 2018.

Moreover, Roku’s move to provide free premium content for a week in fourth-quarter 2018 from its content providers like Discovery’s (NASDAQ:DISCA) TLC, HGTV, Comcast (NASDAQ:CMCSA) owned NBC Universal and Acorn TV among others is expected to be a significant boost to the hours streamed.

Further, we expect user engagement levels to increase as the holiday season is likely to boost content availability from its partners. Therefore, Player revenues may get a boost in the soon-to-be reported quarter.

Click here to know how Roku’s overall fourth-quarter performance is likely to be.

Increasing Smart TV Share to Boost Active Accounts

Roku is increasing its share in the smart TV market, which is a positive. Management anticipates its TV market share in the United States to be 25% in 2018, up from 20% in 2017. Increased penetration of Roku’s TV share will boost its active accounts as more than half of its new accounts came from Roku TVs in third-quarter 2018.

On the international front, The Roku Channel and Roku TVs are gaining traction in Canada. Moreover, the company was able to resume the sale of Roku devices in Mexico in fourth-quarter 2018, which is likely to aid its device sales, thereby boosting the top line.

However, Best Buy, which is one of the important partners of Roku for its TVs has struck a deal with Amazon (NASDAQ:AMZN) to bring its Fire TV Edition smart TVs to users in the United States and Canada. This may hurt Roku TV adoption rate as the United States is its primary market.

Roku currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Roku, Inc. (ROKU): Free Stock Analysis Report

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Zacks Investment Research

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