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Roku (ROKU) Stock Soars Over 20% After Q2 Earnings: What's Next?

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Roku (ROKU - Free Report) stock climbed over 20% Thursday, following the release of its Q2 earnings results after the closing bell Wednesday. Shares of Roku closed Wednesday at $100.97, and opened Thursday at $118.70 per share before they eventually ended regular trading at $122.03.  

The online streaming TV player’s post-earnings jump is the latest positivity in an already explosive year. Roku stock has soared around 300% YTD, dwarfing the gains seen by its market, the S&P 500 which is up 13.7%, and one of the only other pure-play streaming firms, Netflix (NFLX - Free Report) , which is up 17.9%.

Q2 Overview

Roku reported total net revenue of $250.1 million, for a 59% year-over-year climb and a 21% increase from the previous quarter. Revenue also beat our Zacks Consensus Estimate by 11.28% as it continues it streak of impressive top-line growth.

Platform revenue increased 86%, while player revenue saw 24% growth. Both of these revenue segments exceeded the expectations of our Key Company Metrics. The growth of Roku’s two largest units was fueled by an increase in streaming hours, up 72% to 9.4 billion from Q2 2018.

Plus, Roku’s active accounts hit 30.5 million for the quarter, up 39% from Q2 2018.  Streaming hours and active account strength helped Roku’s key Average Revenue Per User (ARPU) figure jump 27% to $21.06, which beat our Non-Financial Metrics estimate of $20.77.

Meanwhile, Roku reported an adjusted EPS loss of -$0.08. This crushed our estimate that called for a loss of $0.22 a share. This is down from last year when the company broke even based on adjusted EPS.

Q3 & FY 2019/2020 Outlook

In Q3, Roku expects revenue between $250-$255 million, representing 44.2%-47% year-over-year growth. The impressive growth in Q1 and Q2, as well as strong expectations for Q3 and Q4, is expected to bring full-year 2019 revenue to between $1.075 and $1.095 billion. 

Roku is currently the market leader in streaming TV platforms in the U.S., beating out Sony’s (SNE - Free Report) PlayStation, Microsoft’s (MSFT - Free Report) Xbox, Amazon’s (AMZN - Free Report) Fire TV, Google’s (GOOGL - Free Report) Android TV and Chromecast, and other popular industry names. Roku is also forecasted to increase its market share in the coming years, which would likely boost the company’s top and bottom lines. And Roku represented one in three smart TVs sold in the U.S. during the first half of the year.

The company also recently agreed to sell several new Roku products in Walmart (WMT - Free Report) under Walmart’s Onn brand, in addition to selling its original products at the retail giant.

Looking further ahead, Roku’s revenue is forecasted to hit $1.38 billion in fiscal 2020, for between 25% and 30% growth over fiscal 2019. It is important to note that our figures have not been updated since the positive results, but that growth range is based on our fiscal 2020 estimates and Roku’s full year guidance. The sustained revenue growth could help to push full-year adjusted EPS into the green at some point relatively soon. Roku posted losses in 2018 and appears set to report a full-year loss this year, based on our current estimates.

Bottom Line

As an industry leader in streaming hardware, Roku will benefit from the increasing popularity of the streaming TV market, and could potentially increase its market share advantage over its competitors in the coming years. Big names are set to enter the streaming arena with Disney (DIS - Free Report) launching its Disney Plus service in November and Comcast (CMCSA - Free Report) is expected to launch its NBCUniversal service in April 2020. With many of these companies entering the streaming market, the number of users of smart TVs and streaming hardware is likely to significantly increase and Roku stands to benefit massively from this change.

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