Key takeaways
- Roku’s stock rose 11% on Thursday after the company released its earnings report on February 15
- The company reported Q4 revenue of $867.4 million, up from the $800 million it projected
- Management cautioned that economic factors could create challenges in 2023 but anticipated a positive adjusted EBITDA for the full year 2024
Roku delivered surprising Q4 2022 earnings that beat expectations as the company reported growth in its platform business. In the previous quarter, Roku warned investors that the company faced a weaker-than-expected Q4 result.
At the time, management thought inflationary pressure and advertising slowdowns would create challenges. Fortunately, their projections were inaccurate, and the company exceeded expectations.
Can Roku continue its winning streak, and what do the company's projections mean for investors? We’ll look at the earnings report and where the stock could be headed in 2023.
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What is Roku?
Roku was founded in 2002 by Anthony Wood and sells various digital media players focused on streaming. It also provides advertising services and has licensed its hardware and software to other companies.
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Originally, Roku TVs were manufactured in partnership with TV makers, and Roku just provided the software. However, in January 2023, the company announced that it would be making its own TVs to sell to consumers.
Key numbers from the earnings report
Roku’s earnings report contained a few ups and downs. Management stated, "While cyclical economic pressures are affecting our business, two things remain true: The secular trend supporting our business remains intact, and the combination of our scale, engagement and innovation position Roku exceptionally well to benefit when the market rebounds."
Active account holders grew from 65.4 million during the third quarter to 70 million in the fourth quarter. In comparison, competitor Tubi only reached 64 million monthly active users.
Platform revenue rose 5% to $731.3 million, mainly due to advertisem*nt sales. Unfortunately, device sales dropped by 18% to $135.8 million.
Moving forward, Roku forecasts total revenue of $700 million in Q1 of 2023 despite various “macro uncertainties” and inflationary challenges it mentioned in its letter to shareholders. This projection is higher than Wall Street’s estimate of $692 million.
What does the future hold for Roku?
The upcoming years for Roku could make or break the company. Although this quarter's earning report was positive, most investors are waiting for profitability to be seen in the company.
In the letter to shareholders Chief Executive Anthony Wood and Chief Financial Officer Steve Louden said, "Through a combination of operating expense control and revenue growth, we are committed to a path that delivers positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the full year 2024."
Future guidance was also positive, and the company is looking to make a comeback.
What is happening with Roku stock?
Roku stock is up more than 70% year-to-date but down roughly 51% over the last 12 months. In the report, the company posted a quarterly net loss of $237 million or $1.70 per share. Analysts expected a $1.72 loss per share.
Additionally, analysts predicted a loss based on adjusted earnings of $131 million, but Roku posted a better result of $95.2 million. Even revenue rose to $867 million compared to $865 million in the prior year, beating analyst predictions of $803 million.
While Roku’s stock price is far below its high of over $473 in July of 2021, the company’s YTD results are much better than what stockholders saw in 2022.
The bullish case for Roku
The big question potential investors have is, "Should I invest in Roku stock now?"
There is no straight answer to this because personal finances are personal for a reason. Plus, the stock is volatile, and not everyone can handle the ups and downs of the stock market.
The bullish case is obvious. Roku continues to gain more market share as it sells more hardware and software. Investors would also be happy if a company like Netflix or Apple bought out the company.
Here are a few arguments that show the potential for this stock:
- Roku's number of account holders is still growing. The company added 2.3 million new active users in Q3 of 2022 to reach 65.4 million. In Q4 of 2022, account holders grew to 70 million.
- Large-cap companies like Netflix or Amazon may attempt to purchase Roku for several reasons. For one, Roku has done the heavy lifting of entering into consumer households. This could yield great potential returns for streaming giants.
- The company is slowly dominating the TV platform market. According to their executives Roku holds 33% of the market share in North America compared to 16% held by Amazon Fire TV.
Long-term investors will benefit more from the bullish scenario if the company is able to produce the positive adjusted EBITDA that Wood and Louden project in 2024.
The bearish case for Roku
Roku’s stock price has fluctuated dramatically over the past three years as it hit all-time highs and came close to all-time lows. With any company, investors must take on a certain amount of risk for a big payout, but whether the payout will ever come from Roku is still being determined.
The bearish scenario includes the following obstacles:
- Small market-cap companies need to spend more on advertising to grow quickly, but they have little cash for advertising. Inflation rates could continue to eat into Roku’s profits as the company continues dealing with debt.
- Increased competition in the market takes more stakes in consumer households. This is similar to Netflix or Tesla, where the company is first in the marketplace, but new companies become fierce competition.
- Ad sales declined again due to a possible recession and consumer spending drops. This is perhaps the worst scenario for Roku’s bottom line.
Should investors be investing in Roku and emerging tech?
Answering the question of whether to invest or not should always come back to your goals and if you have the endurance to handle a volatile market.
The short-term outlook for Roku is looking rocky due to multiple challenges facing the company. Long-term, the outlook for Roku might be better if the company continues to increase its market share and develop new products to improve its bottom line.
Investors who are on the fence could consider Q.ai Emerging Tech Kit to make investing easier. Q.ai’s software identifies leading technology ETFs and stocks to provide a balance of diversified investments across the sector. Better yet, with Portfolio Protection, you can rest easy knowing your portfolio is protected if market conditions shift.
The bottom line
Investors are paying attention to the future of Roku as both their market share and revenue increase. Ultimately, investors are contemplating whether this stock is still a growth stock or not.
As the company announced its goal to deliver a full-year adjusted EBITDA profit in 2024, most investors accepted this news with joy, causing the stock to rise 11%. However, only time will tell if share values will return to their July 2021 highs.
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