Streaming platform and hardware provider Roku (NASDAQ:ROKU)'s stock has been selling off as streaming content providers are starting to push back. The blowback from the fallout with YouTube TV (Alphabet (NASDAQ:GOOGL) Inc Class C (NASDAQ:GOOG) is spreading to other content providers. Amazon Prime (NASDAQ:AMZN) is next up for negotiating its distribution agreement in 2022 as its IMDB service is the main focal point. The negotiations will form a template moving forward with other streaming services and content providers.
Roku has been the dominant streaming content distribution platform and network with over 55 million active accounts, but signs are showing evidence of its loosening its grip. The Company took an extended period of time to negotiate a deal with WarnerMedia’s HBO Max (NYSE:T), but the channel was finally placed on the network for users to access.
There is definitely friction building between the largest streaming networks, but the question is whether they can grow without access to the Roku network of users. In this light, Roku continues to have the upper hand that strengthens as active accounts continue to grow. The Company is still the leader in connected TV (CTV) and its ad-based video on demand (AVOD) is a growth driver as more channels stream free content. Prudent investors that have been patiently waiting for entry can watch for opportunistic pullbacks to get exposure in shares of Roku.
Q2 Fiscal 2021 Earnings Release
On Aug. 4, 2021, Roku reported its fiscal Q2 2021 results for the quarter ending June 2021. The Company reported GAAP earnings-per-share (EPS) profit of $0.52 versus consensus analyst estimates for a profit of $0.14, a $0.38 beat. Revenues grew 81.2% YoY to $645.1 million, beating analyst estimates for $618.35 million. The platform revenues increased 117% YoY to $532 million. Active accounts grew to 55.1 million, up 1.5 million sequentially since Q1 2021 and up 28% YoY from 43 million. The average revenue per user (ARPU) rose 46% YoY to $36.46. The Company more than doubled monetized ad videos as gross profits rose 130% YoY. Streaming hours were 17.4 billion, falling (-1 billion hours) from Q1 2021.
Upside Revenue Guidance
The Company raised its guidance and expects Q3 2021 revenues of $680 million versus $644.36 consensus estimates. Gross profits are expected around $320 million at the midpoint, up 49% YoY. Adjusted EBITDA is expected around $65 million.
Conference Call Takeaways
Roku Co-Founder and CEO Anthony Wood commented,
“Audiences, content and advertisers continue their shift to TV streaming around the globe. Roku is a key enabler of this long-term secular trend. This quarter, platform revenue exceeded $0.5 billion for the first time, driven by significant contributions from both content distribution and advertising activities. On the content front, we are seeing direct-to-consumer streaming services lean into our platform’s effective merchandising tools. Also, of note, at the recent upfronts, we closed commitments with all seven major advertising agency holding companies. We had a great Q2, and we are well positioned for the future.”
CFO Commentary
Roku CFO Steve Louden provided growth metrics for the quarter,
“We grew active accounts by 1.5 million in Q2, ending the quarter with 55.1 million. Q2 2021 net adds were higher than pre-COVID levels in Q2 2019, but as expected, lower than the pandemic-related surge of Q2 2020. Sales of player units were relatively flat year-over-year, and average selling price decreased 2% year-over-year. Roku users streamed 17.4 billion hours in the quarter, an increase of nearly 19% year-over-year.
"Platform monetization accelerated with ARPU of $36.46 on a trailing 12-month basis, up 46% year-over-year. Total Q2 revenue increased a record 81% year-over-year to $645.1 million. Platform segment revenue was up 117% year-over-year to $532.3 million, representing 83% of total revenue. While player revenue was relatively flat year-over-year, following the pandemic-driven demand spike in Q2 2020.
"Our key financial metric gross profit grew 130% year-over-year in Q2 to $338.3 million, resulting in gross margin of 52%. Player gross margin of negative 6% was lower than normal due to global supply chain issues, which are affecting logistics and component pricing. Platform gross margin of 65% was more than expected due to a favorable mix toward higher-margin, media and entertainment spend by content publishers.”
ROKU Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provide a precision view of the landscape for ROKU stock. The weekly rifle chart has been in a downtrend after triggering the weekly market structure high (MSH) trigger under $378.00 and is starting to form another inverse pup breakdown on the break of the $311.40 Fibonacci (fib) level.
The weekly 5-period moving average (MA) is starting to slope back down at $317.80 as the weekly stochastic still remains under the 20-band and possibly setting up another cross down at the 10-band. The weekly lower Bollinger® Bands (BBs) sit at $238.21. Bulls can watch for a market structure low (MSL) buy trigger on a breakout back above $334.11. The daily rifle chart broke down again with a falling 5-period MA at $317.85 towards the daily lower BBs at $292.35 as they start to expand indicating a price range expansion is coming.
Prudent investors can watch for opportunistic pullback levels at the $287.13 fib, $271.68 fib, $263.14, $254.79 fib, and the $240.88 price level. Upside trajectories range from the $346.37 fib up towards the $442.99 fib level.