Roku Q1 2021 Earnings Report Preview: What to Look For

Roku Inc. (ROKU) is the largest streaming-device manufacturer in the U.S., with 38% of the streaming-media player market. The company has utilized this market dominance to exert substantial control in a series of standoffs over streaming content with major entertainment companies such as WarnerMedia and, most recently, Google's (GOOGL) YouTube TV subscription service. Roku's position has grown even stronger as the COVID-19 pandemic has sharply boosted its number of users as millions of people sheltering at home.

Investors will focus on whether Roku can translate these trends into consistent profit growth when the company reports earnings for Q1 2021 on May 6, 2021. They may be disappointed. Analysts expect the company to report a loss in Q1 after posting two quarters in a row of profits on an earnings per share (EPS) basis. At the same time, analysts estimate that Roku's revenue will continue to grow at a rapid pace.

Investors will also closely watch Roku's total number of active accounts, a key metric used to gauge the size of the company's user base. More subscribers means more people that will see ads, making the platform more attractive to advertisers, a major source of revenue. Analysts expect active accounts to grow substantially, but at the slowest rate in at least 17 quarters.

Roku shares traded roughly in line with the broader market from last May through the middle of September. At that time, the stock began a prolonged and significant rally and outperformed the market through February of this year. Following the Q4 FY 2020 earnings report that month, Roku shares declined sharply before staging a partial recovery in April. All told, Roku stock has dramatically outperformed the broader market in the past year, providing 1-year trailing total returns of 157.1% as compared with 46.5% for the S&P 500 as of May 4.

Roku Earnings History

Despite its successes in other areas, Roku has struggled to maintain positive EPS in recent years. The company posted a six-quarter streak of losses from Q1 FY 2019 through Q2 FY 2020. The past two quarters saw that trend reverse. Roku posted a small profit in Q3 FY 2020 and then Roku made a bigger profit in Q4, its best EPS performance in at least 15 quarters. In Q1 FY 2021, analysts expect that the momentum will fade. They estimate the company will report a loss of $0.13 per share. Notably, that loss will be less than a third the size of the same quarter a year earlier.

Roku's revenue has been much more consistent, a factor that's helped buoy the stock of the company. In the past three years, Roku has reported quarterly revenue growth ranging from a low of 36.5% in Q1 FY 2018 to a high of 73.1% in Q3 FY 2020. Analysts estimate that Roku's revenue growth will slow a bit to 53.7% for Q1 FY 2021. That's strong, but slower than the immediate two preceding quarters as well as the quarter one year prior.

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be watching for growth in the size of Roku's user base as measured by the number of active accounts. Roku defines active accounts as the number of distinct user accounts that have streamed content on its platform over the last 30 days of the period. The metric excludes users who streamed content from the The Roku Channel on non-Roku platforms. It also does not count the number of unique individuals using the platform or the number of devices tied to an account. Multiple individuals may use a single active account and it may be accessed via multiple streaming devices. Regardless, the number of active accounts will be correlated with the number of viewers, or targets for advertisers. A large user base attracts more spending from advertisers. It also means more recurring subscription revenue and more people buying and replacing Roku products as they age or break.

Roku's active accounts have grown substantially in recent years, from 14.2 million at Q1 FY 2017 to 51.2 million in Q4 FY 2020. At the same time, the pace of growth has decelerated over time. Quarterly growth rate percentages were in the mid-to-high 40s in FY 2017 and much of FY 2018. That growth has slowed to the high-30s and low-40s in FY 2019 and FY 2020. Analysts now predict that Roku will post YOY active account growth of 35.6% in Q1 FY 2021. While this estimated growth rate is robust, it nonetheless would represent the slowest growth rate in at least four years at Roku.