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Following an earnings report which beat Wall Street expectations, Roku stock surged 25% Friday, despite the fact the company continues to face challenges through the back end of the year, especially around the “muted” TV advertising market.
The company reported that net revenue was up 11% year over year, to $847 million, with a net loss of $107.6 million, or $0.76 a share. The net loss was less than the loss one year prior, when it came in at $112 million.
Platform revenue, made up of ad sales, distribution deal revenues, and the streaming service The Roku Channel, were $744 million, also representing an 11% increase over the year.
In the earnings release the company said, “While Q2 Platform revenue exceeded our expectations, the macro environment continued to create uncertainty.”
US advertising came in flat year over year for the quarter, although ad spending on traditional TV ads had fallen 9.4%, while what is called traditional TV scatter, ie ad inventory which was not purchased at the Upfronts, had fallen 17.2%.
The management warned the ongoing SAG/writer’s strike in Hollywood will negatively impact media and entertainment spend over the second half, and analysts note that will prove a significant challenge.
Macquarie analyst Tim Nollen wrote in a note, “This hits Roku in particular given the heavy promotions it provides for content.”
Nollen noted, as he continued to rate the stock an Outperform with a $93 price target, that Roku has undertaken several initiatives to diversify its ad base. Among them, is opening up the Roku City homepage for advertising, increasing ad demand with more third-party technologies, and exploiting the recently announced Shopify partnership, which may make smaller advertisers more likely to buy ads.
Nollen said, “While advertising is cyclical, Roku continues to amass a scaled platform that is increasingly open to abundant [connected TV] demand sources to offer full scale top and bottom funnel advertising.”
Over the quarter Roku added 1.9 million active accounts, bringing total active accounts to 73.5 million, and marking a 16% year-over-year growth. However growth in average revenue per user, ARPU, remained negative at $40.67, down 7% year-over-year.
Streaming hours were 25.1 billion, marking an increase of 4.4 billion hours compared to the same period in the prior year.
Revenue guidance for the third quarter was about $815 million, beating Wall Street’s consensus estimates. Total gross profit was forecast to be roughly $355 million, with an adjusted EBITDA of negative $50 million.
On Friday, Wells Fargo analyst Steve Cahall wrote, “We think the guide has more opportunity than risk. Monetization and hours spent on the platform have been improving quarter-over-quarter, so we think ROKU can meet or beat.”
Cahall continued to rate the stock at Equal Weight, due to the fact it continues to remain at the whims of a volatile and unpredictable ad market. He increased his price target however, to $84 per share, up from $63.
