As the curtain rose on Thursday afternoon’s earnings report, the audience held their breath as Roku (NASDAQ: ROKU) stood center stage. After tumbling more than 90% from its pandemic peak, Roku’s share price had staged a strong comeback, more than doubling from its bear market low. Revenue growth had picked up pace, and the company had reaped the benefits of cost reductions from rounds of layoffs.
Yet, despite the applause, the leading streaming distribution platform’s fourth-quarter report failed to impress, and the stock is now grappling with over a 20% decline as of the latest update.
Meeting and Missing Expectations
While Roku’s actual numbers for the period largely aligned with expectations, management’s guidance in some key metrics fell short, signaling that the company’s recovery, along with the ad market, might hit some rough patches.
In the fourth quarter, revenue saw a 14% year-over-year increase to reach $984.4 million, outperforming the analysts’ consensus estimate of $968.2 million. Active accounts rose by 14%, while streaming hours surged 21%, crossing the 100 billion-hour mark for the year. While usage trends were robust, Roku cited weaknesses in the media and entertainment industry, and an uneven recovery in the ad market as obstacles to growth.
The company’s bottom line showed a generally accepted accounting principles (GAAP) loss of $78.3 million, or $0.55 per share, aligning with estimates.
Image source: Getty Images.
Guidance Flounders
Management set the tone with a first-quarter revenue guidance of $850 million, representing a 20% growth – slightly above the analyst consensus estimate of $833.6 million. However, Roku’s gross profit forecast of $370 million fell just short of the $373.4 million analyst estimate. The company also projected breaking even on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), in contrast to its fourth-quarter profit of $47.7 million.
Citing a “challenging macro environment and uneven ad market recovery” in its guidance, Roku also struck a cautious note on its full-year growth outlook, highlighting the potential for a difficult year-over-year growth rate comparison in streaming services distribution and a challenging media and entertainment environment for the rest of the year. Consequently, it anticipates sluggish growth in streaming subscriptions and advertising from its streaming partners.
Charting Roku’s Course
The fourth-quarter update and guidance suggest that Roku’s road to profitability may be longer than previously anticipated, partly due to weaknesses in media and entertainment spending.
However, Roku still stands solidly positioned to reap the benefits of the long-term shift of advertising revenue from linear TV to streaming. The company revealed that streaming accounted for over 60% of TV time for U.S. adults aged 18 to 49, while advertisers allocated only 29% of their TV budgets to streaming.
This imbalance is expected to correct itself over time, especially as most major streaming services have introduced ad-supported tiers, with strong growth, as evidenced by Netflix’s quarterly reports. Roku’s user base is also on a steady growth trajectory. Additionally, the company is expanding its product partners and diversifying its reach across geographies and retail platforms.
The elements are in place for the streaming stock to achieve its goals. Investors may need to exhibit a little more patience while the company endeavors to deliver on their heightened expectations.
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Jeremy Bowman holds positions in Roku. The Motley Fool holds positions in and recommends Roku. The Motley Fool maintains a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
