Roku Q3 FY2021 Earnings Report Preview: What to Look For

Roku Inc. (ROKU) has seen its profit and revenue growth accelerate dramatically over the past year amid the COVID-19 pandemic and the ongoing shift from traditional TV to streaming TV. But Roku, still a relatively small company, has recently been in a highly publicized business dispute with tech behemoth Google as the streaming wars heat up. Roku says that the tech giant sought preferential treatment on its platform for Google's YouTube unit, which Google has denied. In the end, Google announced on Oct. 22 that Roku customers could no longer download the YouTube or YouTube TV apps to their devices starting Dec. 9.

Investors will be focused on how these and other developments will affect the rapid pace of Roku's growth when the company reports earnings on Nov. 3, 2021 for Q3 FY 2021. The forecast from analysts is mixed. Analysts expect earnings per share (EPS) to decline despite robust revenue growth.

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. Analysts expect active accounts to rise, but at the slowest pace of any quarter in at least the past four years.

Shares of Roku have performed on par with the rest of the market over the past year. However, the stock, whose movements have been extremely volatile, spent most of the last year outperforming. After reaching a recent peak in late July, the stock has staged a sharp decline. Roku's shares have provided a total return of 39.9% over the past year, only slightly above the S&P 500's total return of 39.1%.

Roku Earnings History

Roku reported Q2 FY 2021 earnings and revenue that beat analysts' expectations. EPS rose at a record pace, up 246.9% compared to the year-ago quarter. Revenue grew 81.2% year over year (YOY), its fastest pace out of any quarter in at least the past four years. Roku highlighted in its earnings press release the acceleration of the ongoing shift by advertisers from traditional TV to streaming TV. It also said that it more than doubled its monetized video ad impressions on a YOY basis.

In Q1 FY 2021, Roku posted earnings and revenue that came in above consensus estimates. EPS increased 219.7% compared to the year-ago quarter, which is robust growth but slower than the previous quarter's pace of 466.2%. Revenue expanded 79.0% YOY, accelerating from the prior quarter's pace and also the fastest quarterly growth in more than three years. Roku said it generated record revenue and gross profit during the quarter. It also said that streaming hours increased by 1.4 billion hours from the previous quarter to 18.3 billion.

Analysts expect mixed results in Q3 FY 2021. EPS is forecast to fall 18.9% YOY after four consecutive quarters of rapid growth. Revenue is expected to increase 51.4% YOY. While that would be a rapid growth rate, it still would be the slowest pace since the second quarter of FY 2020. For full-year FY 2021, analysts expect Roku to post positive EPS for the first time in at least the past five years. Annual revenue is forecast to rise 59.8%, which would be the fastest pace of growth in at least the past five years.

^{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, family members streaming content on the 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.

The number of active accounts has grown rapidly over the past several years. At the end of FY 2017, Roku had 19.3 million active accounts. That number grew to 51.2 million by the end of FY 2020. Growth has slowed modestly over those years, however. The growth in active accounts for each quarter in FY 2018 ranged between 40%-46% YOY. By FY 2020, that range had fallen to 37%-42% YOY. Growth in active accounts has continued to decelerate in FY 2021, slowing to a pace of 34.7% YOY in Q1 and again to 28.1% in Q2. Analysts expect Roku's active accounts to grow 23.3% in Q3 FY 2021, the slowest pace out of any quarter in at least the past four years.