Roku (NASDAQ:ROKU) delivered better-than-expected Q1 2024 financial results and a stronger-than-expected Q2 revenue forecast. Despite a Q1 beat and a solid Q2 sales outlook, Roku stock fell over 3% in Thursday’s after-hours trading. Investors were concerned as the company’s leadership highlighted the challenges posed by tough year-over-year comparisons in streaming services for the coming quarters.
Roku, known for its streaming services, audio devices, and smart TVs, explained that previous price hikes and a shift towards ad-supported offerings have led to challenging year-over-year comparisons. Additionally, the company expects a slight moderation in adjusted EBITDA relative to the first half of the year.
With this background, let’s delve into Roku’s Q1 performance.
Roku – Q1 Sales and Earnings Surpass Expectations
Roku delivered total revenue of $881.5 million, up about 19% year-over-year. The 14% increase in streaming households (previously known as Active Accounts) and the 23% jump in streaming hours led to the growth in its top line. Roku’s top line also surpassed Street’s expectations of $843.5 million. However, average revenue per user (ARPU) remained flat.
It’s worth noting that Roku achieved positive adjusted EBITDA and free cash flow for the third consecutive quarter, reflecting its focus on operational efficiencies.
Meanwhile, Roku managed to cut losses in Q1. It reported a net loss of $0.35 per share, much lower than the prior-year quarter’s loss of $1.38 per share. Moreover, Roku’s bottom line compared favorably with the Street’s loss projection of $0.61 per share.
Outlook
The company expects to deliver total revenue of $935 million in Q2, reflecting year-over-year growth of 10.4%. Moreover, it exceeded analysts’ average estimate of $926.5 million.
While the company faces tough comparisons, its leadership remains optimistic about boosting Platform revenue growth and sustaining the growth of adjusted EBITDA and free cash flow beyond 2025. In addition, Roku is broadening the monetization of the Roku Home Screen, which will enhance its programmatic ad capabilities.
Is Roku Stock Expected to Go Up?
Roku stock is down about 28.9% year-to-date. This decline reflects concerns over its ARPU growth and heightened competition from big players. Given competitive headwinds and tough comparisons, Wall Street is cautiously optimistic about Roku’s prospects.
Roku stock has eight Buys, 10 Holds, and two Sell recommendations for a Moderate Buy consensus rating. Analysts’ average price target on Roku stock is $86.69, implying 38.02% upside potential from current levels.
