The smart-TV pioneer is doing a lot of things right for a stock that is trading sharply lower in 2024.
With Roku (ROKU -4.95%) shares trading sharply lower this year, it wasn’t going to take a lot to get the stock moving after the company announced its second-quarter results following the market close on Thursday. Thankfully for investors, most of the newsy nuggets coming out of the financial update were upbeat.
There was more to like than not like in the critical quarterly performance. Let’s dig into the report to pick out some of the more encouraging revelations this week by the smart-TV pioneer.
1. It starts with a solid beat
Roku’s guidance called for $935 million in revenue for the three months ending in June, a 10% increase from where it landed a year earlier. Analysts were modestly more hopeful, eyeing $937.6 million on the top line. Both forecasts proved to be conservative. Roku’s record quarterly revenue of $968.2 million was a 14% year-over-year jump.
It was another positive surprise on the bottom line. Roku posted its tenth consecutive quarterly loss, but it was a lot less red ink than anyone was expecting. Its deficit clocked in at $34 million or $0.24 a share, less than a third the quarterly loss it served up a year earlier. Roku’s late April outlook was a net loss of $65 million. Wall Street pros were bracing for a deficit of $0.43 a share heading into this week’s telltale update.
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2. A billion-dollar plan
A strong quarter doesn’t pack a lot of octane if a company’s near-term outlook is soft. Roku’s guidance isn’t soft. It’s modeling revenue of $1.01 billion for the third quarter, its first — but hopefully not last — time that it scores a 10-figure tally on the top line. It’s marginally ahead of where analysts are perched. Roku is bracing investors for a loss of $50 million. This would represent sequential deterioration from the $34 million deficit it just posted, but it bears repeating that Roku’s guidance for that quarter was a loss of $65 million. In terms of Wall Street pros, they are currently forecasting $71 million in red ink.
3. Engagement is still winning
There are now 83.6 million streaming households on the platform, a 14% increase over the past year. The 30.1 billion streaming hours over the three months ending in June was a 20% improvement. It’s great to see streaming hours grow faster than the number of households on the platform. It means that the average Roku user is spending more time on the platform.
A critical note here is that 30.1 billion hours in the second quarter is less than the record 30.8 billion hours it served in the first quarter of this year. It’s not as problematic as it seems. There is seasonality to consumer streaming habits. Roku has experienced a sequential dip between the first and second quarters in two of the three previous years. It was flat in the other year. In short, engagement is still strong for Roku.
4. Channel surfing to The Roku Channel
The emergence of Roku’s namesake channel is starting to matter. It was easy to question the existence of the ad-supported The Roku Channel when it was launched nearly seven years ago. The appeal of the platform to the thousands of apps available on the streaming operating system is the agnosticism. Roku isn’t trying to hook viewers in order to sell smartphones or engage in online shopping like its rivals are doing. The Roku Channel with a widening catalog of shows, movies, and live TV content could have potentially challenged the agnosticism.
The Roku Channel has become a force for the platform operator. It’s now the third most popular app on the platform in terms of reach and engagement. Streaming hours have soared 75% for the channel over the past year. Roku can use free space across the user experience that isn’t spoken for by other advertisers to pitch the live and on-demand content available on The Roku Channel, and those marketing missives are delivering 70% of The Roku Channel’s usage over folks just clicking on the channel’s tile.
5. Roku is still the king of the digital hill
There’s been a lot of bearish chatter about how Roku can hold up competing against some of the richest companies in the country that are active in this space. Roku stock took a big hit earlier this year just because the country’s largest brick-and-mortar retailer announced plans to enter this niche. Roku continues to be the undisputed leader.
Leaning on Comscore CTV Intelligence data for May, Roku’s shareholder letter shows how it has a 47% share of the time spent by U.S. viewers across all smart TV operating systems. This is triple its closest competitor. You can lead a horse to a smart-TV operating system, but you can’t make it stream. With Roku starting to turn the corner is so many ways, it may not be a laggard among streaming service stocks for long.