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Roku (ROKU) Q1 Loss Narrower Than Expected, Revenues Rise Y/Y

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Roku (ROKU - Free Report) reported first-quarter 2020 loss of 45 cents per share that was narrower than the Zacks Consensus Estimate of a loss of 47 cents. The company had reported loss of 9 cents per share in the year-ago quarter.

Revenues soared 55.2% from the year-ago quarter to $320.8 million and comfortably beat the consensus mark by 3%.

Active accounts jumped 37% year over year to 39.8 million. Streaming hours increased 49% year over year to 13.2 billion. Moreover, average revenue per user (ARPU) grew 28% to $24.35 (on a trailing 12-month basis).

Top-Line Details

Platform revenues (72.5% of revenues) surged 73.4% year over year to $232.6 million. Premium subscriptions in The Roku Channel witnessed a surge in signups, as consumers took advantage of more than 25 extended free trials amid lockdown in the first quarter.

Per management, The Roku Channel reached households with an estimated 36 million people in the first quarter. The Global Citizen’s One World: Together at Home special drove the largest single day of live viewing in the history of the channel.

Moreover, consumption of ad-supported video on demand content grew faster than overall platform growth.

Roku Inc Price, Consensus and EPS Surprise

Roku Inc Price, Consensus and EPS Surprise

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

However, the company witnessed an increase in video ad campaign cancellations or delayed starts throughout March, primarily from categories including travel, quick-serve restaurants, theatrical and automotive among others, hardest hit by stay-at-home policies.

Player revenues (27.5% of revenues) increased 21.7% from the year-ago quarter to $88.2 million. Player unit sales were up 25% year over year, primarily attributed to growth in core retail channels of the company.

Average sales price (ASP) declined 7% due to the company’s strategy of offering attractive discounts to players.

It witnessed strong unit sales of Roku TV in the reported quarter. In January, Roku entered the Brazil market with Roku TVs manufactured and sold by AOC. The company witnessed tremendous initial sales and response in the country.

The company believes that Roku TV represented more than one in three smart TVs sold in the United States and more than one in four smart TVs sold in Canada in first-quarter 2020.

Operating Details

Gross margin contracted 480 basis points (bps) on a year-over-year basis to 44%. Decline in ASPs affected gross margin.

Operating expenses, as a percentage of revenues, increased 720 bps from the year-ago quarter to 61.2%. 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 increased 490 bps, 60 bps and 170 bps, respectively.

In the first quarter, adjusted EBITDA declined 9.9% year over year to $16.3 million.

Operating loss was $55.2 million in the reported quarter. The company had reported an operating loss of $10.7 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2020, cash and cash equivalents including short-term investments were $588.3 million compared with $515.5 million, as of Dec 31, 2019.

Guidance Withdrawal for 2020

Roku withdrew its 2020 guidance due to the economic uncertainty stemming from the coronavirus outbreak.

Management expects overall advertising expenditure in the United States to decline in 2020. Nonetheless, ad revenues were expected to grow substantially year over year.

Notably, for 2020, the company projected revenues between $1.58 billion and $1.62 billion. At midpoint, revenues were expected to grow 42% year over year.

Moreover, gross profit was estimated between $720 million and $740 million, up 47% year over year at midpoint. Adjusted EBITDA was assumed between ($10 million) and $10 million.

Zacks Rank & Stocks to Consider

Roku currently has a Zacks Rank #3 (Hold).

Electronic Arts (EA - Free Report) , Activision Blizzard (ATVI - Free Report) and Netflix Inc. (NFLX - Free Report) are some better-ranked stocks in the broader Consumer & Discretionary sector. Electronic Arts sports a Zacks Rank #1 (Strong Buy) while Activision Blizzard and Netflix carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Electronic Arts, Activision Blizzard and Netflix is 8.1%, 12.2% and 30%, respectively.

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