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Roku Q3 Earnings on Deck: Will the Exponential Growth Continue?

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Roku (ROKU - Free Report) is set to report its third quarter results Wednesday, November 6 after the closing bell. The streaming platform’s performance has captivated Wall Street, sending the company’s shares up over 350% YTD.

Roku has recently switched its focus from hardware sales to advertising revenue where it believes it can hold a competitive advantage over rival streaming platforms. As the streaming space becomes denser, Roku’s new focal point may be just what the company needs to thrive in the competitive market. Let’s take a closer look at what moves Roku has been making and how it might report its Q3.

Roku Ramps Up Advertising

Roku announced late last month that it would be acquiring the privately held company, Dataxu, in a deal valued at $150 million. Dataxu provides automated bidding and self-service software that allows marketers to manage programmatic ad campaigns across a variety of digital platforms.

Platforms like Dataxu utilize cutting-edge algorithms that match advertising spots with available ad spaces, while using machine learning to ensure that ads are shown to the consumers who are most likely to engage with them. Dataxu connects multiple ad buyers with multiple ad publishers which should help boost Roku’s advertising push.

The acquisition has already been approved by Roku’s board of directors and should be finalized during the fourth quarter. Roku’s large audience and platform layout are what have made advertising revenue the bulk of Roku’s total sales.

Roku offers thousands of downloadable apps that allow users to customize their experience with paid streaming services as well as ad-supported options. Both Apple TV+ (AAPL - Free Report) and Disney+ (DIS - Free Report) will be available to stream on Roku devices, making the streaming wars a beneficiary phenomenon rather than a detrimental one. The company also gets a cut of advertising revenue from the ad-supported providers that stream on its platform like Sony’s (SNE - Free Report) Crackle, which provides an additional advertising revenue stream.

Outlook

Roku is already the No. 1 US streaming platform in terms of hours streamed, with more ad-supported hours than any other OTT platform. The company also boasts more than 30.5 million active accounts, putting a Roku device in about 1 in 4 US households.

Roku is trying to crack the $70 billion broadcast television ad market, which it believes can elevate the company to the next level and separate it from competitors like Amazon (AMZN - Free Report) . As consumers flock towards streaming platforms, advertisers are following suit which put platforms like Roku in an opportune position to cash in.

Our Q3 consensus estimates call for Roku to see a top-line surge of 48.84% to $258.07 million while earnings plummet over 211% to a loss of $0.28 per share. Platform revenue is expected to surge 73.07% to $173.2 million and player sales are projected to grow 14.9% to $84.2 million. Total active accounts are expected to grow 39.8% Y/Y to 33.3 million and average revenue per user is expected to reach $22 for a 27% hike from the year ago quarter. Our fiscal 2019 consensus estimates forecast earnings to decline 525% and sales to soar 45.76% to $1.08 billion.

Bottom Line

Roku’s focus on advertising revenue should bode well for the company as the thousands of apps on the platform lends itself to mass marketing. The Dataxu acquisition should also help Roku sustain a competitive advantage in terms of advertising revenue. Roku’s ability to cash in on not only Roku specific ads, but from all the ad-supported providers that stream on its platform is a strong tailwind for the business. Roku’s earning revisions have trended higher, earning the stock a Zacks Rank #1 (Strong Buy).

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