Can Roku (ROKU) maintain its history growth rate? 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. But has the company’s valuation run its course?
This is the main question investors will want an answer to when the company reports second quarter fiscal 2021 earnings results after the closing bell Wednesday. The digital media device manufacturer has benefited from the video streaming industry, which has grown at a breakneck pace over the past few years. And thanks to the continued shift away from traditional media, the industry has spawned record number of new user sign-ups across services like Netflix (NFLX), Apple’s (AAPL) Apple TV+, Disney’s (DIS) Disney+ platform and AT&T’s (T) HBO Max, among others.
The combined rise of streaming services is poised to expand Roku’s platform as more households continue to cancel cable and satellite services. Not only are these services benefiting Roku which sells streaming devices to customers, Roku is parlaying its platform growth in the realm of subscriptions and advertising dollars that are shifting from linear television to streaming. 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. The company’s 80% revenue growth last quarter and its 132% profit growth underscores the strength of its business. With all of these potential tailwinds still in play, on Wednesday the company must do its part to demonstrate that value and dispel concerns about valuation by delivering not only a top- and bottom-line beat, but also upside revenue guidance.
In the three months that ended June, the Los Gatos, Calif.-based company is expected to earn 12 cents per share on revenue of $618.54 million. This compares to the year-ago quarter when the company lost 35 cents per share on revenue of $315.43 million. For the full year, ending in December, earnings are expected to be 46 cents per share, reversing a loss of 14 cents a year ago, while full-year revenue of $2.76 billion would rise 55% 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 a prime position to benefit from the growth in subscription-video-on-demand. As such, Roku’s Q2 numbers are likely to be on the higher-end of analysts’ forecast. In the first quarter Roku not only beat on both the top and bottom lines, revenue surged 79% year over year, driven by an increase of 101% in platform revenue.
The number of active accounts rose 35% during the quarter, reaching 53.6 million total, above the 52.5 million estimate. Just as important, Q1 gross profit rose 132% to $327 million. Notably, the company’s average revenue per user jumped 32% to $32.14, up from $28.76 in Q4. Not only did this beat the $28.21 consensus estimates, the 67% rise in Q1 gross margin on platform (up 1,070 basis points) underscores the pricing power of Roku’s growth.
While valuation worries may persist, evidenced by the 49% increase in streaming hours which came to 18.3 billion, Roku is pushing all of the right buttons to keep its users engaged. On Wednesday, the company can affirm its streaming dominance by growing these metrics.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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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