3 Analysts React To Roku Earnings

Roku Inc ROKU shares were rallying Friday after the streaming video device maker posted top- and bottom-line beats after the close Thursday. 

“The company posted a strong quarter as consumers continue to cut the cord and plug into Roku, demonstrating both the secular shift toward over-the-top video consumption and management's adept ability to exploit the trend, in our view,” according to D.A. Davidson.

Roku's underperformance on platform revenue was offset by a beat in player sales. Active accounts grew 40.4 percent, streaming hours expanded 69.8 percent and average revenue per user (ARPU) rose 30.3 percent.

The company projected better-than-expected 2019 earnings on 36-percent annual growth.

“This could ultimately prove conservative if monetization of Roku ad inventory continues to scale and/or active accounts continue to accelerate,” KeyBanc Capital Markets said of the guidance. 

Roku shares were up 21.96 percent at $62.79 at the time of publication Friday. 

Ad Impressions Surge

Roku doubled its monetized ad impressions in 2018, and KeyBanc anticipates rates more than doubling in 2019.

“This compares to 60-percent streaming hour growth in 2018 and our expectations for streaming hour deceleration in 2019,” the sell-side firm said in a note. “With ad load being constant, this implies that viewership/access to inventory from monetizable sources continue to grow much faster than non-monetizable sources.”

Analysts expect such growth to come from The Roku Channel, scaling benefits and a rise in advertising video on demand.

“We estimate that ARPU from The Roku Channel sub-segment is the fastest-growing contributor to overall revenue growth and ARPU growth,” according to Wedbush. “As active users on the Roku Platform seek out free content, they are steered toward The Roku Channel.”

The Roku Channel’s new premium subscriptions are expected to drive revenue and adoption of free ad-based content.

Investments Increase

In 2019, Roku plans to increase spending on advertising, the Roku Channel, Roku TV and international expansion. The latter is expected to contribute meaningful revenue only after 2019, according to D.A. Davidson. 

“We believe Roku’s heavy investment spend is warranted due to the highly competitive and growing [over-the-top] market and large opportunity that the company has to gain market share through active account growth," the sell-side firm said. 

Roku's spending forecast exceeded Wedbush estimates and prompted a reduction in the research firm's operating margin estimates.

The Ratings

• D.A. Davidson maintained a Buy rating on the stock and raised the price target from $49 to $60;
• KeyBanc Capital Markets maintained an Overweight rating and raised its target from $59 to $63; and
• Wedbush downgraded from Outperform to Neutral and cut its target from $65 to $55.

Related Links:

Citron Calls Roku 'Uninvestable' After Big Gain

Citi Slashes Roku Price Target, Names 5 Reasons For Staying Neutral

Photo courtesy of Roku.