Roku (ROKU) 4th Quarter Earnings: What to Expect

Family in front of a Roku TV
Credit: Roku

Roku (ROKU) stock has been on fire, soaring more than 100% over the past three months, driven by rapid revenue and account growth owing to the arrival of new streaming services and pandemic-induced lockdown periods. Despite some valuation concerns, it’s hard to ignore the fact that Roku fits the textbook definition of a stay-at-home stock.

And the company is expected to deliver even more returns, according to BofA analyst Ruplu Bhattacharya who recently raised his price target to $500 from $380, citing advertising dollars that are shifting from linear television to streaming. The optimism is also centered on Roku’s growth prospects which are now much more favorable, particularly with dominant streaming services such Netflix (NFLX) and Hulu showing strong growth trends, combined with the emergence 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 it available on both platforms. The combined rise on streaming services is poised to expand Roku’s platform as more households continue to cancel cable and satellite services. And this would seem to dispel concerns about valuation. With all of these potential tailwinds still in play, on Thursday the company must allay concerns about potential subscriber losses and any impacts to its ad pricing power.

In the three months that ended January, the Los Gatos, Calif.-based company is expected to lose 7 cents per share on revenue of $613.07 million. This compares to the year-ago quarter when the company lost 13 cents per share on revenue of $411.23 million. For the full year, the loss is expected to be 74 cents per share, down from $1.41 per share three months ago, while full-year revenue of $1.74 billion would rise 54.4% 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 Q4 numbers are likely to be on the higher-end of analysts’ forecast. In the third quarter Roku not only beat on both the top and bottom lines, revenue surged 73% year over year, driven by 78% surge in platform revenue.

The company added 2.9 million active accounts during the quarter, reaching 46 million total, a 35% rise year over year. What’s more, the company saw streaming hours surge to 14.8 billion hours. Just as important, Q3 gross profit rose 81%, driven by a 216 basis point increase to 47.6%. This lead to operating profit swinging from to a positive, compared to a year-ago loss. Notably, the company’s average revenue per user rose 20% to $27, underscoring how it is reaping the benefits of the evolution of streaming television.

Roku on Thursday must demonstrate that it can build on these metrics and, thus, removing valuation fears by delivering not only a top- and bottom-line beat, but also upward revenue guidance which will assert itself as subscription-video-on-demand channel 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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