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Key Takeaways from Roku’s Q1 Earnings Report

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Roku (NASDAQ:ROKU) stock fell by as much as 10% in extended trading on Thursday. The streaming giant reported its first-quarter results after the market bell on May 7. The company’s losses met analysts’ estimates, while its revenues beat Wall Street’s numbers. Undoubtedly, Roku benefited from its streaming services amid the coronavirus pandemic. However, investors were disappointed by the steep rise in ad cancellations during the quarter, which led to a decline in the stock.

Here are the three important takeaways from Roku’s Q1 earnings results.

Strong revenues

The company’s revenues of $321 million grew by 55% YoY and beat the consensus estimate of $307 million. The platform revenue rose by 73% YoY to $233 million due to a surge in streaming services. The average revenue per user was $24.35, which increased double-digits by 28% YoY. In the preliminary results in mid-April, Rokua expected first-quarter revenue of $307 million–$317 million. The company also expected a net loss of $55 million–$60 million. Roku withdrew its 2020 guidance amid uncertainty related to the coronavirus. Meanwhile, the company expects to post an adjusted EBITDA loss for 2020 due to an anticipated rise in operating expenses. 

Roku also reported a loss of $0.45 per share in the first quarter, which was in-line with analysts’ expectations. The loss was $0.09 per share in the first quarter of 2019.

Roku’s active accounts and streaming hours

Roku added 2.9 million new active accounts in the March-ending quarter, which brought the total count to 39.8 million. The company’s total active accounts also grew by around 37% YoY from 29.1 million in the same quarter last year. Notably, the company added around 2 million accounts in the first quarter of 2019.

In comparison, Amazon (NASDAQ:AMZN) had 40 million Fire TV users at the beginning of the year. The company noted that Roku subscriptions started increasing in mid-March. The increase continued in April as most of the people were staying at home. In the shareholder letter, management said, “The acceleration of growth in new accounts and viewership continued in April.”

Roku’s streaming hours also increased by around 13% or 1.6 billion hours over the fourth quarter to 13.2 billion in the first quarter. The streaming hours have increased by around 49% from the first quarter of 2019. People have been spending more time streaming movies and shows at home amid the lockdown. The consistent rise in new accounts and streaming hours should benefit the second quarter’s revenue as well.

Advertising business

Like Facebook (NASDAQ:FB), Google-parent Alphabet (NASDAQ:GOOGL), and Twitter (NYSE:TWTR), COVID-19 had a negative impact on Roku’s main revenue source—its advertising business. The company’s advertising business witnessed higher than normal cancellations, which impacted its ad revenues. The pullback in ad spending will continue to hinder the company’s ad business growth in the second quarter. However, the ad spending moved to Roku’s streaming platform from traditional TV, which benefited the advertising business.

Amid the uncertain future, the company expects that the “ad business will deliver substantial revenue growth on a year-over-year basis, albeit at a slower pace,” as stated in the shareholder letter.

Read Should You Sell Roku Stock Due to Sour Outlook? to learn more.

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