What to Look for from ROKU

Key Takeaways

  • Analysts estimate EPS of $0.11 vs. -$0.35 in Q2 FY 2020.
  • Active accounts are expected to post healthy growth, but at a slower pace relative to recent quarters.
  • Q2 revenue is expected to grow at its fastest rate in over three years.

Roku Inc. (ROKU), the leading streaming-device manufacturer in the U.S., has taken a 33% to 39% market share in the U.S. each year since 2015. Business has been particularly vibrant during the COVID-19 pandemic as customers opt to stay home and stream video, although the outlook isn’t entirely perfect. Roku faces increasing competition from traditional-media rivals such as Comcast Corp. (CMCSA) that may be looking to expand into streaming. The company has also made the headlines following reports of glitches with its devices.

Investors will watch to see if these challenges slow down Roku’s recent rapid growth when the company reports earnings for Q2 fiscal year (FY) 2021 on Aug. 4 after market close. Analysts predict that earnings per share (EPS) will be positive for the fourth straight quarter as revenue continues to grow at a rapid clip.

Investors will also closely watch Roku’s total number of active accounts, a key metric used to gauge the size of the company’s user base. More subscribers means more people that will see ads, making the platform more attractive to advertisers, a major source of revenue. Analysts expect active accounts to grow significantly, albeit at the slowest rate in at least four years.

Roku shares climbed ahead of the market in Sept. 2020 and increased precipitously following the company’s Q4 FY 2020 earnings release in Feb. 2021. The stock then declined through the subsequent earnings release in May before rallying once again to a new high in July. While shares have fallen slightly since then, they are still far outpacing the broader market. Roku stock has provided a one-year trailing total return of 184.9% compared with 35.4% for the S&P 500.

Source: TradingView.

Roku Earnings History

Roku posted six straight quarters of negative EPS, beginning in Q1 FY 2019. Losses then widened in the first two quarters of FY 2020 as the impact of the COVID-19 pandemic on the broader market was particularly significant.

Encouragingly, Roku has reversed that trend since Q3 FY 2020, posting positive EPS that rapidly accelerated on a sequential basis. The two most recent quarters have seen by far the largest quarterly EPS in at least three years. Analysts don’t expect that trend to continue, though. Q2 FY 2021 EPS is predicted to be positive but lower than the two previous quarters.

While EPS has been volatile, Roku’s revenue growth has been steady. The company has posted consistent year-over-year (YOY) revenue gains every quarter for at least three years, with the most rapid gain over this period being recorded in Q1 FY 2021. Analysts expect that this recent rapid growth will continue, as Q2 FY 2021 revenue is predicted to grow at the second-fastest pace YOY in several years.

Roku Key Stats
  Estimate for Q2 FY 2021 Q2 FY 2020 Q2 FY 2019
Earnings Per Share ($) 0.11 -0.35 -0.08
Revenue ($M) 619.0 356.1 250.1
Active Accounts (M) 55.8 43.0 30.5

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be watching for growth in the size of Roku’s user base as measured by the number of active accounts. Roku defines active accounts as the number of distinct user accounts that have streamed content on its platform over the last 30 days of the period.

The metric excludes users who streamed content from The Roku Channel on non-Roku platforms. It also does not count the number of unique individuals using the platform or the number of devices tied to an account—multiple individuals may use a single active account and it may be accessed via multiple streaming devices. Regardless, the number of active accounts will be correlated with the number of viewers, or targets for advertisers. A large user base attracts more spending from advertisers. It also means more recurring subscription revenue and more people buying and replacing Roku products as they age or break.

Roku has grown its active accounts at a rapid pace in recent years. In Q2 FY 2017, the company reported 15.1 million active accounts. By Q2 FY 2020, three years later, that number had nearly tripled to 43.0 million.

Analysts predict continued and significant growth YOY, forecasting that Roku could report 55.8 million active accounts in Q2 FY 2021. However, the pace at which the company has added active accounts has generally slowed, with YOY percentage growth rates in the mid-40s in FY 2017 and FY 2018 dropping to the high-30s in FY 2019. Analysts predict the slowest growth rate in several years in Q2 FY 2021.

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