Roku (ROKU) Q2 Loss Narrower Than Expected, Revenues Up Y/Y

Roku (NASDAQ:ROKU) reported second-quarter 2019 loss of 8 cents per share that was narrower than the Zacks Consensus Estimate of a loss of 22 cents. The company had reported breakeven earnings in the year-ago quarter.

Revenues soared 59.5% from the year-ago quarter to $250.1 million that surpassed the consensus mark of $224 million.

Active accounts surged 39% year over year to 30.5 million. Streaming hours increased 72% year over year to 9.4 billion. Moreover, average revenue per user (ARPU) increased 27% to $21.06 (on a trailing 12-month basis).

Quarter Details

Platform revenues (67% of revenues) surged 85.6% year over year to $167.7 million.

Increase in estimated value of content distribution agreements has been the key catalyst in boosting top-line growth. Additionally, robust growth in advertising continued as monetized video ad impressions once again more than doubled year over year.

Roku, Inc. Price, Consensus and EPS Surprise

Notably, in May, the company launched Activation Insights, a new analytics and planning tool for advertisers targeting OTT markets. The solution helps advertisers improve their ability to maximize ROI by offering analytical insight into OTT consumers.

Player revenues (33% of revenues) increased 24% from the year-ago quarter to $82.4 million. Player unit sales were up 36% year over year, primarily attributed to sales growth in the core retail channels of the company.

Average sales price (ASP) declined 10% due to the company’s strategy of offering players at attractive discounts.

Management believes it has reached one out of five households in the United States compared to other multichannel video programming distributors.

In the first quarter, the company had added premium subscriptions service to The Roku Channel. The subscribers currently have access to more than 40 premium content services, including HBO, SHOWTIME, EPIX and STARZ.

Gross margin contracted 390 basis points (bps) on a year-over-year basis to 45.7%. Decline in ASPs and the newly introduced premium subscription model affected gross margin.

Operating expenses as percentage of revenues increased 20 bps from the year-ago quarter to 49.8%. Growth in headcount can be cited as a reason for increase in operating expenses.

Sales & marketing and general & administrative expenses increased 40 bps and 60 bps respectively. However, research & development expenses declined150 bps on a year-over-year basis.

Adjusted EBITDA was $11.1 million compared with $7.1 million in the year-ago quarter.

Operating loss was $10.4 million compared with a loss of $0.1 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Jun 30, 2019, cash and cash equivalents including short-term investments was $386.5 million compared with $263.9 million as of Mar 31, 2019.

Guidance

For 2019, Roku expects revenues between $1.07 billion and $1.09 billion. The Zacks Consensus Estimate for revenues is pegged at $1.04 billion.

Improvement in monetized video ad impressions is expected to continue throughout 2019, thereby driving advertising revenues.

Gross profit is expected between $480 million and $490 million. Adjusted EBITDA is expected between $30 million and $40 million.

For third-quarter 2019, Roku expects revenues between $250 million and $255 million. The Zacks Consensus Estimate for revenues is pegged at $243 million.

The company expects platform revenues to represent roughly two-thirds of total revenues in the quarter.

Gross profit is expected between $114 million and $119 million. Adjusted EBITDA loss is expected between $5 million and $11 million.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader consumer discretionary sector include Comcast Corporation (NASDAQ:CMCSA) , Glu Mobile (NASDAQ:GLUU) and Shaw Communications (NYSE:SJR) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Comcast, Glu Mobile and Shaw Communications is 10%, 11.9% and 5%, respectively.

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