Roku Could Make a Big Move When It Reports Its Q4 Earnings

Danny Vena, The Motley Fool

The past several months have been a thrill ride for investors in Roku (NASDAQ: ROKU). After its stock reached all-time highs in early October, the streaming provider was battered by the recent market correction and weaker-than-expected guidance for the fourth quarter, which caused shares to lose more than two-thirds of their value. A preliminary release of surprisingly robust user stats in early January then sent the stock soaring, gaining more than 25% in one day.

Roku is scheduled to report its fourth-quarter financial results after the market close on Thursday, Feb. 21. Let's recap the company's third-quarter performance and look at recent developments for any insight into what investors can expect from the earnings report.

A television showing programs available on The Roku Channel.

Image source: Roku.

Soaring growth

For the third quarter, Roku reported revenue of $173.4 million, up 39% year over year, which topped both the high end of the company's guidance and analysts' consensus estimates. Roku's net loss of $11.7 million was also not as bad as forecast, and a significant improvement versus the $46 million loss in the year-ago quarter. This resulted in a diluted loss per share of $0.09, also much improved from the $8.79 loss in the prior-year quarter.  

Both segments helped boost the results. Roku's platform business topped $100 million in revenue, up 74% year over year, while the player segment generated $73.3 million, up 9%. The company's focus on platform revenue from its streaming business has supercharged Roku's recent results, as gross margins of more than 70% far exceed those of the player segment at just 11.5%.

Roku continues to attract the streaming crowd, as active accounts jumped 43% year over year, surpassing 23.8 million. Hours spent on the platform also soared, with streaming hours of 6.2 billion, a 63% increase compared with the same quarter last year. The average revenue per user grew to $17.34, up 37% on a trailing-12-month basis, as existing users paid more.

Roku forecast net revenue in a range of $255 million to $265 million, which would represent gains between 35% and 41% year over year. The company expected bottom-line results ranging from a loss of $4 million to a gain of $3 million. Investors were initially unhappy with Roku's guidance. Analysts' consensus estimates were calling for revenue of about $259 million, near the midpoint of guidance, but the Street was looking for net income of $7 million, far exceeding the high end of Roku's forecast. This sent skittish investors running for the doors, and the stock plunged 22% the day following its earnings report.

Surprises in store

Those who sold off Roku stock in the wake of its forecast soon learned the error of their ways. The company reported surprisingly strong early results for the holiday quarter, sending its volatile stock soaring 25% on the news.

Why the enthusiasm? Roku reported two preliminary metrics that gave investors cause to celebrate. For the fourth quarter, active accounts topped 27 million, up roughly 40% year over year, continuing the strength it showed in the third quarter. The company also reported that streaming hours in the quarter jumped to 7.3 billion, up 68% year over year, and accelerating sequentially from 6.2 billion. While these results don't address the company's financial results in any way, they do illustrate strong operating metrics for Roku during the important holiday quarter. 

The Roku Channel showing premium channels available.

Image source: Roku.

That wasn't all. Roku also announced in late January that it would be adding premium channels to its lineup, allowing users to subscribe to cable channels from Showtime, Epix, and Starz, as well as a number of lesser-known channels. The company plans to add to its offerings over time. Subscribers to The Roku Channel would also get free trials offered by each of the providers, and the content would be aggregated in one place. Customers will also be able to pay for all these additional subscriptions on a single monthly bill. 

What now?

Analysts have upped their consensus estimates for the quarter, and are now calling for revenue of $261.62 million and earnings per share of about $0.03, which fall squarely near the midpoint and high end of management's guidance, respectively. With the preliminary results pointing to strong user metrics, all eyes will again be on Roku's guidance. Based on the early results, I wouldn't be surprised it Roku's quarterly results are stronger than many expect. 

We'll have all the details when Roku reports earnings after the market close on Thursday, Feb. 21. Buckle up, Buttercup!

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Danny Vena owns shares of Roku, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.