ROKU stock jumped 2% Monday as the broader market tumbled amid trade war worries. The climb is part of an astounding 244.3% jump for Roku shares in 2019. This growth likely has investors wondering if Roku can continue its expansion. Overview
Roku was founded in 2002 by Anthony Wood, who is still the CEO and owns roughly 27% of the company. Netflix and Menlo Ventures were early investors in the firm that went public in September 2017. The company’s primary product is a streaming player that delivers over-the-top content, like Netflix
NFLX and Amazon’s ( AMZN Quick Quote AMZN - Free Report) Prime Video. Roku offers multiple devices that usually come in the form of a $30-$100 product that plugs into a television to display content. The company’s platform is also integrated into smart TVs manufactured by TCL, Sharp SHCAY, Hitachi HTHIY, Hisense, and others.
Roku’s platform is perfectly suited to collect a large number of content providers, as it does not produce or prefer any content of its own. Other competitors like Amazon’s Fire TV promote its own content over others, which could make content producers hesitant to partner with the streaming platform. Roku currently hosts over 3,000 channels in a variety of formats. Some are subscription-based like Netflix, while some are ad supported. This last type of channel is how Roku generates a lot of its revenue, by hosting the ads itself and taking a portion of the income from the content producer.
The firm last reported that 41 million devices with Roku were in use, which accounted for 15.2% of all media streaming devices. As for smart TVs, Roku holds an impressive 37% of the market, according to IHS Markit. Roku licenses its operating system to electronics makers as customers move away from set-top-box systems toward smart TVs.
Roku’s performance over the past six quarters has been stellar, with revenue up year-over-year in each quarter. This past quarter, revenue came in at $207 million, while earnings sat at -$0.09 per share. Revenue surged 51.3% over last year, while earnings dropped 28.6%. Meanwhile, Roku’s active accounts have increased about 40% from the end of 2018 Q1 to reach 29.1 million.
Roku has also been increasing one of its most important metrics, average revenue per user. In Q1 2018, ARPU was at a healthy $15.02 per month. Since then, this metric has jumped 27% through last quarter to $19.06. Streaming hours during this period have skyrocketed, jumping up 74% from 5.1 billion hours per quarter to 8.9 billion hours. This is likely in part due to a general trend of higher media consumption, but a large portion can likely be attributed to the constant content addition and improvement to Roku’s platform.
The U.S. is currently the firm’s largest market and Roku currently only sells its products in a small number of countries. Roku is now looking to expand into more international markets. The company stated in its Q1 earnings report that it is focusing on “four strategic areas of growth and one of those was international” This international expansion will greatly increase Roku’s addressable market. Netflix has recently expanded aggressively on the international stage and it has payed off well. International revenues for Netflix eclipsed domestic revenues during Q4 of 2018 and are now about $250 million higher per quarter.
Unlike many other U.S. companies, Roku has actually
benefited slightly from the U.S.-China trade war. Many of the TVs that use Roku’s operating system are made in China. These firms have rushed to import ahead of possible additional tariffs on Chinese goods, as they aim to build up “safety” inventory and push sales as much as possible before prices are impacted.
Our Zacks Consensus Estimates call for adjusted Q2 EPS of -$0.22, down from break-even earnings a year ago. Revenue for this quarter is projected to jump 43.32% to $224.75 million. This is projected to come mostly from increases in platform sales as device sales fall. For full-year fiscal 2019, estimates predict revenue will jump 39.72%, while earnings dive 625% to -$0.58. This past year, earnings showed a loss of just $0.08 per share.
Looking further ahead, estimates for fiscal 2020 appear are also promising, with revenue predicted to jump 32.9% above 2019 to $1.38 billion. Earnings are projected to show a slightly better picture than 2019 with a 17.86% increase to -$0.47.
Roku currently holds a Zacks Rank #2 (Buy), in part due to positive longer-term earnings estimate revisions for fiscal 2019 and 2020. Roku stock has climbed 20% and 29%, respectively following its previous earnings releases.