A month has gone by since the last earnings report for Roku (ROKU - Free Report) . Shares have added about 8.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Roku due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Roku Q2 Loss Narrower Than Expected, Revenues Rise Y/Y
Roku reported second-quarter 2020 loss of 35 cents per share that was narrower than the Zacks Consensus Estimate of a loss of 55 cents. The company had reported loss of 8 cents per share in the year-ago quarter.
Revenues soared 42.4% from the year-ago quarter’s level to $356.1 million and beat the consensus mark by 17.9%.
Active accounts jumped 41% year over year to 43 million. Streaming hours increased 65% year over year to 14.6 billion. Moreover, average revenue per user (ARPU) grew 18% to $24.92 (on a trailing 12-month basis).
Platform revenues (68.7% of revenues) surged 46% year over year to $244.8 million. Premium subscriptions in The Roku Channel witnessed a surge in signups, as consumers took advantage of more than 25 extended free trials amid lockdown in the second quarter.
Per management, The Roku Channel reached households with an estimated 43 million people in the second quarter. Roku users streamed 14.6 billion hours in the second-quarter, up 65% year over year.
Moreover, content distribution benefited from a surge in subscription signups, movie rentals and purchases as well as elevated revenues from increased device sales.
The company witnessed an increase in video ad campaign cancellations or delayed starts, primarily from categories including travel, quick-serve restaurants, theatrical and automotive among others that were severely hit by stay-at-home policies.
Player revenues (31.3% of revenues) increased 35.1% from the year-ago quarter’s levels to $11.3 million. Player unit sales were up 28% year over year, owing to growth in the United States and in certain international markets.
In addition to new account growth, existing Roku users added almost three million new Roku streaming devices to their accounts during the quarter.
The company believes that Roku TV represented more than one in three smart TVs sold in the United States and one in four smart TVs sold in Canada in second-quarter 2020.
Gross margin contracted 440 basis points (bps) on a year-over-year basis to 41.2%.
Operating expenses, as a percentage of revenues, increased 330 bps from the year-ago quarter’s figure to 53.1%. Growth in headcount and sales & marketing (S&M) expenses led to higher operating expenses.
S&M and general & administrative (G&A) expenses increased 340 bps and100 bps, respectively while research & development (R&D) expenses contracted 110 bps.
In the second quarter, adjusted EBITDA declined 130.4% year over year to negative $3.4 million.
Operating loss was $42.2 million in the reported quarter. The company had reported an operating loss of $10.4 million in the year-ago quarter.
Balance Sheet & Cash Flow
As of Jun 30, 2020, cash and cash equivalents including short-term investments were $887 million compared with $588.3 million, as of Mar 31, 2020.
Guidance Withdrawal for 2020
Roku withdrew its 2020 guidance due to the economic uncertainty stemming from the coronavirus outbreak.
Management expects overall advertising expenditure in the United States to decline in 2020. Nonetheless, ad revenues were expected to grow substantially year over year.
Notably, for 2020, the company projected revenues between $1.58 billion and $1.62 billion. At midpoint, revenues were expected to increase 42% year over year.
Moreover, gross profit was estimated between $720 million and $740 million, up 47% year over year at midpoint. Adjusted EBITDA was assumed between ($10 million) and $10 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 15.51% due to these changes.
At this time, Roku has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Roku has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.