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Spotify vs. Roku: Which Recent IPO Had the Better Earnings Report?

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Spotify (SPOT - Free Report) and Roku (ROKU - Free Report) are two of the hottest recent IPOs on the market, intriguing investors on when to get in and when to cash out. On May 2, Spotify released its Q1 earnings report, with Roku following suit soon after. Let’s look into these two filings to see which recent IPO stock had the better earnings report.

Roku

On Wednesday, Roku reported Q1 losses of $0.07 per share and revenue of $136.6 million, beating both of our Zacks Consensus Estimates. The stock opened higher at $38.28 but has since fallen to basically flat on the day.

The company raised its 2018 revenue guidance and now expects net sales of $685 to $705 million, citing what it feels is strong momentum and a dominating position in an industry with favorable trends.

On top of this, gross margins are expected to increase as well. Full-year 2017 results had margins at 39%, while guidance puts 2018 gross margins between 42.3% and 43.3%. Although this is the case, Roku expects to end the year with net losses almost twice as much as last year.

Spotify

Last week, Spotify reported disappointing revenue of $1.36 billion. The stock dropped 7.5% in after-hours trading following the report’s release. Since the report, share prices have dropped 11.72%.

Although the company improved year-over-year, with a 37% increase in revenue, there were some concerning statistics—one notably being the breakdown of its revenue. Advertising revenue was a mere 9.8% of comparative revenue brought from subscribers. This marks a 22% decrease when compared to the previous quarter.

Breakdown

Spotify and Roku are in similarly negative positions within the investing world. Short-term volatility is expected with recent IPOs, and their outlooks on the future act as the main determinant for which stock performed better.

Both companies provided full year expectations. Roku positively adjusted its guidance, increasing predicted revenue for the year, while Spotify kept its consistent with previous estimates. This could be an indicator of soon-to-come earnings estimate revisions, aligning with the respective companies’ ideas for their own progress.

Along with this, Roku’s current position within an industry that is rapidly changing in its favor provides investors with a trend to get behind. A continued shift away from traditional TV and Roku’s leading position within this industry will most likely provide positive investor and analyst sentiment and improving outlooks for the company.

Spotify is currently leading the ambiguous music streaming industry.  Roku has the advantage of a rapidly growing industry which provides enough room for multiple companies within it to grow; the same cannot be said with Spotify. The music streaming industry is packed with competitors such as Apple (AAPL - Free Report) Music—which is quickly catching up to Spotify, as well as Pandora and Tidal.

Customer acquisition is also a big advantage that Roku has. Because the company’s industry is growing so quickly, there is more room for acquiring new users, reflective in its 47% increase in active accounts year-over-year. This dominates the 30% increase seen in Spotify’s monthly active users.

Bottom Line 

Roku and Spotify are both sporting a Zacks Rank #3 (Hold). The companies recently released earnings reports, with both posting some metrics that disappointed some investors. 

But with the TV streaming industry rapidly growing, and Roku’s dominating position within it, it holds a growing advantage over Spotify in terms of strength among these recent IPOs.

Combine this with higher gross margins, faster user growth, and improving full year outlooks, and it seems that Roku might have had the better earnings report.

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