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Roku Stock Jumps After a Blowout Holiday Quarter

Roku (NASDAQ: ROKU) was one of the most successful stocks around in 2019, skyrocketing 337% for the year. While the company's shareholders hoped its epic run would continue, Roku's lofty valuation and fear about competition had the stock treading water shortly after the new year.

When Roku reported its fourth-quarter results after the market close on Thursday, though, the company put those fears to rest, delivering everything investors were looking for -- and more.

Image source: Roku.

Revenue is a runaway train

Roku reported net revenue of $411.2 million, up 49% year over year, edging down sequentially from 50% growth in Q3. This exceeded analysts' consensus estimates and the high end of management's forecast, which topped out at $392 million and $396 million, respectively.

The results were driven higher by the platform segment, which grew 71% year over year to $259.6 million, and the player segment, which grew 22% to $151.6 million. Player unit sales increased 33% year over year, as Roku has historically sold its players and dongles at or near cost to expand its ecosystem, a strategy that has been wildly successful.

Overall gross profit margin slipped to 39.3%, down 140 basis points, but still grew 44% year over year to $161.6 million and exceeded management's expectations.

Profits are elusive, but manageable

The decision to expand its installed base of devices was a drag on profits during the quarter, as the player segment lost money in order to expand its user base. Adjusted EBITDA of $15.1 million soared past guidance, which ranged from $7 million to $12 million.

Roku reported a net loss of $15.7 million, resulting in a loss per share of $0.13, though it was better than the $0.14 loss expected by analysts.

Players weren't the only thing that weighed on the results. Operating expenses climbed 68% year over year as Roku invested heavily in research and development and sales and marketing, also in support of its seemingly insatiable top-line growth.

Account growth and engagement soars

Each of Roku's key operating metrics showed just how successful the company's strategy is at drawing users into its platform and keeping them engaged. Roku added incremental active accounts of 4.6 million during the quarter, growing the total to 36.9 million, up 36% year over year, while the average revenue per user (ARPU) continued its steady climb, up 29% to $23.14, on a trailing-12-month basis.

Perhaps even more importantly, viewers are using the platform more and more. Streaming hours grew to 11.7 billion, up 60% year over year. The number of hours streamed per user edged down slightly, from 3.5 hours per day to 3.48 hours per day, the result of the timing of the holidays and the partial rollout of the "Are you still watching?" feature, which prompts users to confirm they are watching after a period of inactivity.

The Roku Channel is also turning heads. The company's ad-supported channel was named one of the three best ad-based over-the-top services among U.S. broadband households according to Parks Associates, reaching an estimated 56 million viewers last year. Streaming of The Roku Channel grew at an even faster rate than the overall rate of streaming, while monetized video advertising impressions more than doubled year over year.

Image source: Getty Images.

An optimistic forecast

For the first quarter, Roku is forecasting revenue of between $300 million and $310 million, with even the low end of the range surpassing analysts' consensus estimates of $297.48 million. Management's full-year forecast was similarly robust, guiding for revenue of between $1.58 billion and $1.62 billion, compared to expectations of $1.58 billion.

The streaming technology provider doesn't provide per-share guidance, but management said it plans to continue its practice of "managing the business to roughly break-even on a full year-adjusted EBITDA basis."

Investors cheered the solid holiday results and the robust forecast, bidding Roku shares up as much as 8% in after-hours trading.

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Danny Vena owns shares of Roku. The Motley Fool owns shares of and recommends Roku. The Motley Fool has a disclosure policy.


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