- Analysts estimate EPS of -$0.71 vs. $0.52 in Q2 FY 2021.
- The number of active accounts is expected to rise YOY, but at the slowest pace in at least 21 quarters.
- Revenue is expected to grow at the slowest rate in at least the last four and a half years.
Roku Inc. (ROKU) posted revenue growth of more than 50% annually in each of the last three years, growth that accelerated during the COVID-19 pandemic as customers sheltering at home turned increasingly to streaming entertainment. But growth has slowed and the company lost money in the latest reported quarter. Analysts now are increasingly bearish about Roku, including its ability to further scale its business in the highly competitive streaming landscape.
Investors will watch whether the company can reignite growth when it reports earnings on July 28, 2022 for Q2 FY 2022. Analysts are not optimistic. Roku is expected to report widening losses per share as revenue decelerates to its slowest pace in several years.
Investors will also closely watch another key metric: Roku's total number of active accounts, which gauges 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. While Roku's total number of active accounts is expected to climb to its highest level of all time, year-over-year (YOY) growth will be substantially slower than the prior-year quarter.
Roku stock has dramatically lagged the stock market in the last year. Although it briefly outperformed the market in July 2021, it began a protracted decline later that month. Roku shares were propelled downwards by the company's Q2, Q3, and Q4 FY 2021 earnings reports. The pace of the stock's decline slowed between February and April 2022, and since April shares have traded mostly sideways. Overall, Roku stock has provided a 1-year trailing total return of -81.6%, dramatically behind the total return of -10.9% for the S&P 500, as of July 27.
Roku Earnings History
Roku struggled to post quarterly earnings per share (EPS) prior to the start of the COVID-19 pandemic. It reported six consecutive quarters of losses per share from Q1 FY 2019 through Q2 FY 2020. However, the company followed by posting six straight quarters of earnings per share. But Roku's earnings performance had already begun to soften by then. Roku's earnings declined in Q4 FY 2021, and it posted a loss in Q1 FY 2022. Now, Roku is expected to report its widest losses per share in at least over four and a half years in Q2 FY 2022.
Roku's revenue growth was robust even before the pandemic. It ranged from 36.5% to 59.5% YOY per quarter in fiscal years 2018 and 2019. Revenue growth accelerated in FY 2020 and the first part of FY 2021, climbing to 73.1% YOY in Q3 FY 2020 and as high as 81.2% YOY for Q2 FY 2021. But the growth rate began to markedly decelerate in the latter part of FY 2021, rising 33.2% YOY by Q4 of that year. It has continued to downshift. For Q2 2022, analysts predict revenue growth of 24.9%.
|Roku Key Stats|
|Estimate for Q2 FY 2022||Q2 FY 2021||Q2 FY 2020|
|Earnings Per Share ($)||-0.71||0.52||-0.35|
|Active Accounts (M)||62.1||55.1||43.0|
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 sometime within the past 30 days of the period. Streamed content from the Roku Channel only on non-Roku platforms does not count as streamed content for the purpose of measuring active accounts. Also, the metric does not distinguish between unique individuals streaming content on the same account. For example, an account with family members all streaming content on that same account only counts as one active account. But the number of active accounts will be closely correlated with the number of viewers, or targets for advertisers. The greater the number of active accounts using Roku's platform, the more attractive the platform will be to advertisers, which will attract more ad spending from them.
Roku's total active accounts grew at a robust pace during the four fiscal years from 2017 through 2020. During that time, the company's user base as measured by this metric more than tripled. But starting in Q4 FY 2020 and for every quarter since, the company has posted a decelerating rate of growth for total active accounts. Growth dropped from 42.4% YOY in Q3 FY 2020 to 34.7% by Q1 FY 2021, then to 14.4% for Q1 FY 2022. Analysts expect this slowdown to continue, with Roku reporting just a 12.7% increase YOY in total active accounts for Q2 FY 2022. This would be the slowest growth in at least 21 quarters.
Barron's. "Roku Gets a New Bear Ahead of Earnings on Slowing Demand Concerns."
Roku Inc. "Investor Events."
Visible Alpha. "Financial Data."
Roku Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 50.