Roku (ROKU) 1st Quarter Earnings: What to Expect

Family using a Roku
Credit: Roku

Roku (ROKU) stock has soared over the past month, gaining some 20%, compared to 6% rise in the S&P 500 index. The textbook definition of a stay-at-home stock, the company has enjoyed rapid revenue and account growth, driven not only by pandemic-induced lockdown periods, but also from the arrival of new streaming services.

Can Roku's growth continue as the economy reopens? This is the main question investors will want an answer to when the company reports first quarter fiscal 2021 earnings results after the closing bell Thursday. Aside from the arrival of Apple’s (AAPL) Apple TV+ and Disney’s (DIS) Disney+ platform, the company has also recently reached an agreement with Comcast’s (CMCSA) Peacock and AT&T’s (T) HBOMax, making them available.

The combined rise on streaming services is poised to expand Roku’s platform as more households continue to cancel cable and satellite services. What’s more, Roku is also benefiting from a rising trend in advertising dollars that are shifting from linear television to streaming. Citing Roku’s dominant market share in streaming advertising, last week Wedbush analyst Michael Pachter upgraded the stock from Neutral to Outperform with a price target of $475, suggesting almost 40% premiums from current levels.

Roku management has also begun to target not only new revenue streams, but also ways to penetrate international markets. Analysts have applauded these moves which are aimed at unlocking years of consistent growth. And this would seem to dispel concerns about valuation, even more so after Roku stock has dropped about 30% from tis 52-week high. With all of these potential tailwinds still in play, on Thursday the company must do its part to demonstrate that value.

In the three months that ended March, the Los Gatos, Calif.-based company is expected to lose 15 cents per share on revenue of $490.56 million. This compares to the year-ago quarter when the company lost 45 cents per share on revenue of $320.77 million. For the full year, ending in December, the loss is expected to be 23 cents per share, up from a loss of 14 cents a year ago, while full-year revenue of $2.57 billion would rise 44.4% year over year.

Roku is still capitalizing strongly from the cord-cutting phenomenon, where consumers are canceling their bloated cable and satellite TV subscriptions in favor of streaming applications. This trend keeps Roku in prime position to benefit from the growth in subscription-video-on-demand. As such, Roku’s Q1 numbers are likely to be on the higher-end of analysts’ forecast. In the fourth quarter Roku not only beat on both the top and bottom lines, revenue surged 58% year over year, driven by an 81% surge in platform revenue.

The number of active accounts rose 39% during the quarter, reaching 51.2 million total, above the 50.5 million estimate. Just as important, Q4 gross margin rose 770 basis points to 47%. Notably, the company’s average revenue per user came to $28.76, up 24% year over year. Not only did this beat the $27.71 consensus estimates, it underscores the pricing power of Roku’s growth. But with valuation concerns emerging, Roku must deliver upward revenue guidance on Thursday, affirming itself as subscription-video-on-demand growth leader for years to come.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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