Where Does Roku Stand Ahead Of Its 1Q Earnings Release?

Roku (ROKU) is scheduled to report first-quarter 2021 earnings on May 6 after the market closes. Over the past month, shares of the digital media player manufacturer have dropped sharply by 11.7% and are currently trading at $320.47. A strong fiscal performance could send shares on an upward trajectory, so let’s take a closer look at what analysts on the Street are expecting.

Earnings Preview

For the first quarter of FY21, the company has forecast total net revenue of $485 million, which would indicate growth of 51% year-on-year and a gross profit of $238 million. Roku also stated that historically, 1Q is seasonally the “softest quarter from a revenue perspective” with revenues typically around 25% lower quarter-on-quarter. Roku’s video streaming platform business segment is expected to comprise around 75% of its revenues in 1Q, and adjusted EBITDA is forecast to come in at $31 million.

While the company did not provide full FY21 financial guidance in the prior quarter due to the pandemic and the resulting economic uncertainty, it did give directional guidance for the year.

Roku expects difficult comparisons to FY20 as 1H20 was impacted by pandemic-led lockdowns, while the second half of FY20, particularly the third quarter, saw rising interest in video streaming and monetization improved.

As a result, the rate of revenue growth for the full year is expected to be below the growth rate in the first and second quarters of FY21. Roku anticipates gross margin for FY21 to be in the mid-40% range.

Analysts are expecting ROKU to report revenues of $491.6 million, while the Earnings Whisper number, or the Street’s unofficial view on earnings, stands at a loss of $0.13 per share.

Prior Period Results

In 4Q, Roku reported diluted EPS of $0.49, while analysts were expecting a loss of $0.05 per share. The company posted revenues of $649.9 million, up 58% year-on-year which topped consensus estimates of $617.7 million.

Additionally, the company surpassed 50 million active accounts, ending 4Q with 51.2 million active users who streamed 17 billion hours of programming, an increase of 55% year-on-year. Furthermore, Roku’s average revenue per user (ARPU) in 4Q came in at $28.76. (See Roku stock analysis on TipRanks)

Factors To Look For

Roku anticipates that as it adds more subscription-video-on-demand (SVOD) services like HBO Max to its streaming platform, ad-supported viewing will continue to rise.

When it comes to international expansion, the company is pursuing a strategy of first building scale, then increasing user engagement, and finally, monetizing the user base.

Roku also believes that the pandemic has accelerated structural business changes, as more viewers cut the cord on pay-TV and shift to streaming. The increase in the number of SVOD services being launched has resulted in advertisers also making the shift from pay-TV to streaming platforms.

Recent Developments

Last month, Roku announced that it will rebrand content from its acquisition of Quibi as “Roku Originals”, and this content will be launched on the Roku Channel. Future original programming from the company will fall under the Roku Originals brand, with 75 Roku Originals expected to be released on the Roku Channel this year.

The company also completed its acquisition of Nielsen’s (NLSN) Advanced Video Advertising (AVA) business last month. The acquisition was announced in March this year and the terms of the acquisition have not been disclosed. Furthermore, Roku has entered into a long-term commercial agreement to integrate Nielsen’s ad and content measurement product, Total Ad Ratings (TAR), into its platform.

Analysts’ Take

On May 4, Rosenblatt Securities analyst Mark Zgutowicz reiterated a Buy on the stock and a price target of $560. Zgutowicz is bullish on the stock and said that while companies like Apple (AAPL) and Google (GOOGL) move towards guarding the privacy of their users, this could result in driving a greater share of advertising revenues to Roku’s connected TV. The analyst stated that “Roku stands out among all OTT/CTV platforms with the most unduplicated 1-to-1 targeted scale across 50M+ households and a wide demographic spectrum across The Roku Channel and premium publisher app viewership.”

Last month, Apple’s Identifier For Advertisers (IDFA) came into force with the launch of Apple’s iOS 14.5. This development will result in app developers being unable to track a user’s IDFA if a user opts out of sharing their privacy details while downloading an app from AAPL’s app store. Similarly, Google is also looking at doing away with third-party cookies for its Chrome browser and replacing it with other alternatives that would give more priority to users’ privacy.

The analyst believes that Roku stands to benefit significantly from the acquisition of Nielsen’s video advertising business as this could result in Roku gaining premium ad inventory from programmers.

The analyst also stated that Roku’s advertising-on-demand (AVOD) platform, The Roku Channel (TRC), with its current reach across 63 million households, could further gain traction with its slate of original programming and targeted advertising.

Zgutowicz commented that with the launch of HBO Max on Roku’s streaming platform in June this year, “we expect 2H sub acquisition/retention spend will be elevated.”

“While monetization is steadily ramping in Canada and the UK, with TRC recently added, we suspect Mexico and Brazil will see monetization begin to accrue in CY22E,” Zgutowicz added.

Overall, the stock has a Moderate Buy consensus rating based on 16 Buys, 4 Holds, and 1 Sell. The average analyst price target of $475.05 implies 48.6% upside potential from current levels.