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ROKU Q4 Earnings Top Estimates, Revenues Ride on Advertising

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Roku (ROKU - Free Report) reported fourth-quarter 2020 earnings of 49 cents per share. The Zacks Consensus Estimate was pegged at a loss of 5 cents per share. The company had reported loss of 13 cents per share in the year-ago quarter.

Revenues soared 58% from the year-ago quarter’s level to $649.9 million and beat the consensus mark by 4.5%.

Active accounts jumped 39% year over year to 51.2 million driven by the popularity of Roku streaming players and Roku TV models in both the United States and international markets. In 2020, the Roku OS was the No. 1 smart TV operating system in the United States with 38% unit share of smart TVs sold.

Moreover, average revenue per user (ARPU) grew 24% to $28.76 (on a trailing 12-month basis) driven by increased per-user engagement, as well as continued investments in channel distribution, content promotions, billing and advertising capabilities.

Roku, Inc. Price, Consensus and EPS Surprise

Roku, Inc. Price, Consensus and EPS Surprise

Roku, Inc. price-consensus-eps-surprise-chart | Roku, Inc. Quote

Top-Line Details

Platform revenues (72.5% of revenues) surged 81.5% year over year to $471.2 million driven by the popularity of the new live TV channel guide, which now includes over 175 channels. The company added more than 50 linear channels in the reported quarter.

Per management, The Roku Channel reached households with an estimated 63 million people in the fourth quarter. Moreover, the Roku platform was the most popular streaming platform with 41% share of streams, which is nearly equivalent to the next three platforms combined per a research by Conviva as cited by Roku.

Moreover, coverage of the Presidential Inauguration and Election Day on The Roku Channel drew record audiences.

Markedly, The Roku Channel grew more than twice as fast as the Roku platform overall, on both streaming hours and active account reach basis. Roku users streamed 17 billion hours in the fourth quarter, up 55% year over year.

Launches of third-party streaming channels throughout 2020 including Comcast (CMCSA - Free Report) owned NBCUniversal’s Peacock, Disney’s (DIS - Free Report) Disney+ and AT&T (T - Free Report) owned WarnerMedia’s HBO Max besides continued investments in The Roku Channel contributed to engagement growth.

Additionally, content distribution benefited from a surge in subscription signups, movie rentals and purchases as well as elevated revenues from increased device sales.

Roku launched NBC News in The Roku Channel in time for the final presidential debate, expanding the overall reach and monetization of NBC News alongside its standalone NBC News app on the Roku platform.

Moreover, this Zacks Rank #2 (Buy) company benefited from advertising spend reallocation towards TV streaming as marketers accelerated their shift out of traditional TV and into TV streaming. During the fourth quarter, while retailers spent 7% less on traditional TV advertising year over year, retail advertising spend on the Roku platform more than doubled. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the fourth quarter, monetized video ad impressions more than doubled year over year, as advertisers increasingly followed users from traditional pay TV to streaming. Product innovation in solutions like the Shopper Data Program with Kroger continued to drive growth.

Markedly, the six largest agency holding companies more than doubled their investment with Roku in the fourth quarter on a year-over-year basis, while also committing to significantly larger 2021 upfronts with Roku.

Player revenues (27.5% of revenues) increased 17.9% from the year-ago quarter’s levels to $178.7 million.

Operating Details

Gross margin expanded 770 basis points (bps) on a year-over-year basis to 47%.

Operating expenses, as a percentage of revenues, decreased to 37% from the year-ago quarter’s 43.5%. Growth in headcount and sales & marketing (S&M) expenses led to higher operating expenses.

S&M, research & development (R&D) and general & administrative (G&A) expenses contracted 20 bps, 460 bps and 170 bps, respectively.

In the fourth quarter, adjusted EBITDA came in at $113.5 million compared with $15.1 million in the year-ago quarter.

Operating income was $65.2 million in the reported quarter. The company had reported an operating loss of $17.8 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Dec 31, 2020, cash and cash equivalents including short-term investments were $1.09 billion compared with $1.04 billion, as of Sep 30, 2020.

Guidance

Roku stated that the first quarter follows the trend of being the seasonally softest quarter from a revenue perspective with roughly 25% lower revenues sequentially followed by a seasonally strong fourth quarter.

The company expects similar seasonality in the first quarter of 2021 with the midpoint of total net revenue of $485 million indicating an increase of 51% year over year.

Moreover, first-quarter platform gross profit is expected to be $238 million at the midpoint.

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