As Roku Inc ROKU approaches its third-quarter earnings release Wednesday, expectations are high on Wall Street, especially given the company’s better-than-expected results in the second quarter.
What To Know: In the previous quarter, Roku reported a narrower-than-anticipated loss of 24 cents per share, beating analyst estimates by a significant margin and exceeding revenue expectations with a 14.3% year-over-year increase to $968.18 million.
Platform revenue, a key performance metric, reached $824 million, up 11% from the prior year. With its third-quarter results slated for release after the market closes on Oct. 30, investors will be looking for confirmation of Roku's continued platform revenue growth trajectory and an update on the company’s strategic initiatives that could impact long-term revenue potential.
Roku is also projecting third-quarter revenue of $1.01 billion and gross profit of $440 million, marking a critical juncture for the company’s platform-driven growth strategy.
Analyst Color: In a recent note, Bank of America analysts cite that Roku is entering a period of accelerated growth in platform revenue, with multiple revenue streams poised to contribute.
The firm has maintained its "Buy" rating and a price target of $90, supported by Roku’s expansion of partnerships with third-party demand-side platforms (DSPs) and growing engagement through the Roku Home Screen.
Bank of America analysts project Roku's third-quarter platform revenue to grow by approximately 9% year-over-year, aligning with the company's guidance, but suggest this estimate could be conservative.
They believe that revenue from political advertising in the fourth quarter, combined with increased ad fill rates and the expansion of new ad verticals, could drive even greater growth by year-end.
An integral part of Roku's strategy is its enhanced partnership with third-party DSPs, which helps improve ad inventory monetization. This development is expected to increase ad fill rates and widen Roku's advertiser base, providing a valuable growth lever.
Further, Roku is enhancing its home screen monetization by integrating video ads and experimenting with new ad categories outside of media and entertainment.
Looking to the fourth quarter and beyond, analysts remain optimistic about Roku’s ability to sustain EBITDA and free cash flow growth, citing controlled operational expenses and an uptick in revenue as positive factors.
While the third quarter faces a 200-basis-point year-over-year headwind due to ASC606 accounting standards and challenging comps in the Streaming Services Distribution segment, the fourth quarter is expected to benefit from political ad spending.
Street estimates anticipate third-quarter platform revenue of approximately $860 million, or a 9.3% year-over-year increase, with fourth-quarter estimates around $917 million, reflecting a 10.6% growth rate.
Additionally, the Street is looking for a net addition of 1.6 million streaming households in the third quarter, bringing Roku's user base to about 85.3 million.
What Else: Roku’s upcoming earnings call will likely address several areas of strategic interest, including the performance of upfront ad sales, the impact of political ad revenue and any signs of recovery in media and entertainment advertising. Investors will also be eager for updates on Roku's international expansion plans, particularly as the company seeks to capitalize on new markets.
Additional insights on third-party DSP integration, ad fill rates and the success of Roku-branded TVs will also be in focus as investors gauge Roku's potential to continue scaling its platform and diversifying revenue streams.
How To Buy ROKU Stock
By now you're likely curious about how to participate in the market for Roku – be it to purchase shares, or even attempt to bet against the company.
Buying shares is typically done through a brokerage account. You can find a list of possible trading platforms here. Many will allow you to buy “fractional shares,” which allows you to own portions of stock without buying an entire share. For example, some stocks, such as Berkshire Hathaway, can cost thousands of dollars to own just one share. However, if you only want to invest a fraction of that, brokerages will allow you to do so.
In the case of Roku, which is trading at $75.88 as of publishing time, $100 would buy you 1.32 shares of stock.
If you're looking to bet against a company, the process is more complex. You'll need access to an options trading platform, or a broker who will allow you to ‘go short' a share of stock by lending you the shares to sell. The process of shorting a stock can be found at this resource. Otherwise, if your broker allows you to trade options, you can either buy a put option, or sell a call option at a strike price above where shares are currently trading – either way it allows you to profit off of the share price decline.
According to data from Benzinga Pro, ROKU has a 52-week high of $108.40 and a 52-week low of $48.33.
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