Roku Stock Falls after-Hours on Q3 Earnings


Nov. 6 2019, Published 5:18 p.m. ET

Shares of online streaming device company Roku (ROKU) fell over 15% in today’s after-hours session, as of the time of this writing. The company announced its third-quarter results and reported sales of $260.9 million with EPS of -$0.22. In the prior-year period, Roku posted sales of $174 million and EPS of -$0.09.

Analysts expected the firm to post sales of $259.36 million and EPS of -$0.28 in the September quarter. So why did Roku stock fall despite an earnings and revenue beat? Well, the company’s guidance left investors pretty unimpressed.

It revised its 2019 guidance upward. And it also revised its midpoint revenue for 2019 to $1.106 billion, below consensus estimates of $1.1 billion.

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What drove sales in Q3?

While total sales rose 50% year-over-year, Roku’s Platform business segment saw growth of 79%. The Platform business raked in sales of $179.3 million, and it now accounts for 69% of total sales.

The company added 1.7 million active accounts in the third quarter, bringing the total number of active accounts to 32.3 million at the end of Q3. Streaming hours rose by 0.9 billion hours sequentially to 10.3 billion. Meanwhile, average revenue per user was up 30% at $22.58. Gross profit rose in line with revenue, at 50% to $118.5 million.

Management was optimistic about the Q3 results. And the company’s shareholder letter states, “We continue to execute well against our long-term strategic plan as the TV market shifts to streaming. In Q3, we beat our outlook for revenue, gross profit, and adjusted EBITDA. Our business momentum and competitive differentiation make Roku an essential partner for content publishers and advertisers. This is evident in the launch of major new streaming services on our platform and by the growth in the number of advertisers who work with Roku.”

The company also believes its Dataxu acquisition will accelerate its advertising technology roadmap. Importantly, the Dataxu acquisition will help Roku take on The Trade Desk (TTD) in the highly lucrative programmatic advertising market. You can read more about the acquisition here.

Roku continues to bank on a huge addressable market

eMarketer expects 56 million US households to cancel their cable or satellite TV subscriptions by 2023. In the third quarter, it estimated 1.7 million consumers to have “cut the cord.” Roku is set to benefit from the growing number of streaming services and rising investments in creating original content. We know Apple TV+ launched last week, and Disney+ is also set to debut shortly.

The Roku operating system is the market leader in smart TVs. The company claimed, “We believe that Roku TV represented more than one in three smart TVs sold in the U.S. during the first nine months of the year.”

While the company’s growth story remains intact, it will be interesting to see if Wall Street revises its target price estimates lower for the stock after a double-digit decline in after-hours. The stock is currently trading at $121.37 which is 31% below its record highs.

Want to learn more about what’s driving Roku stock? It’s worth noting that the company is facing challenges with Netflix on its platform.


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