Key Takeaways

  • EPS was $0.49 vs. the -$0.06 analysts expected.
  • Revenue surpassed analyst expectations.
  • Active accounts were higher than the level analysts estimated.
  • Consumers continue to shift from traditional TV to streaming media.

What Happened

Roku reported financial results for Q4 FY 2020 that beat analyst forecasts. EPS was positive instead of negative, far surpassing expectations. Revenue was also much higher than expected, up 58% on a year-over-year basis. Roku's annual active accounts also beat estimates. The company said it achieved record revenue and gross profit, noting that consumers continue the shift to streaming media.

(Below is Investopedia's original earnings preview, published February 17, 2021.)

What to Look For

Roku Inc. (ROKU), maker of the leading U.S. streaming-media player, is snatching up content as new users of The Roku Channel soar amid the COVID-19 pandemic. The company recently bought for under $100 million content rights from Quibi, the defunct streaming platform. The deal enriches Roku's offerings with more than 75 shows and documentaries, which could enable Roku to earn a premium from advertisers willing to pay extra for exclusive content.

Investors will focus on Roku's growth strategy and whether it can end its long string of losses when it reports earnings on February 18, 2021 for Q4 FY 2020. Analysts expect Roku to post a narrower loss per share compared to the same quarter a year earlier, as revenue continues to expand at a rapid pace.

Investors will also focus on the total number of active accounts, a key metric used to gauge the size of Roku's user base. A bigger user base means more eyes on ads, and that makes the platform more attractive to advertisers, a major source of revenue. Analysts expect active accounts to continue rising at a healthy pace.

Shares of Roku have soared over the past year, significantly outpacing the broader market. The stock fell further than the market during the pandemic-induced crash early last year. But the lockdowns and shelter-in-place measures put in place to limit the spread of the virus boosted the number of hours people spent on streaming platforms and provided ample reason for investors to be optimistic about streaming companies like Roku. The company's shares have provided a total return of 269.4% over the past 12 months, more than 16 times bigger than the S&P 500's total return of 16.7%.

One Year Total Return for S&P 500 and Roku
Source: TradingView.

Roku surprised analysts in Q3 FY 2020, posting earnings per share (EPS) of $0.09 rather than an expected loss of $0.40 per share. It was the first quarter of profitability since Q4 FY 2018. Revenue rose 73.1%, the fastest pace in at least 15 quarters. The company partly attributed its outstanding results to the continuing acceleration of the shift away from traditional TV to online streaming triggered by the pandemic. The earnings report also helped ignite a three-month acceleration in Roku's stock advance from early November through mid-February.

In the second quarter, Roku reported a loss per share of $0.35, marking the sixth consecutive quarter of losses. Revenue rose 42.4%, a robust pace but still the slowest pace since Q3 FY 2018. Despite economic pressures causing advertisers to re-evaluate their investment decisions, Roku said the shift from TV to streaming accelerated during the quarter.

Analysts expect Roku to report a loss per share in Q4 FY 2020, though it will be less than half as big as the same quarter a year earlier. Revenue is forecast to rise 49.2% compared to the same three-month period a year ago. For full-year FY 2020, analysts expect a loss of $0.73 per share, the company's biggest loss since FY 2017. However, annual revenue is expected to rise 54.3%, its fastest pace in at least five years.

Roku Key Metrics
  Estimate for Q4 2020 (FY) Q4 2019 (FY) Q4 2018 (FY)
Earnings Per Share ($) -0.06 -0.13  0.05
Revenue ($M) 613.4 411.2 275.7
Active Accounts (M) 50.7 36.9 27.1

Source: Visible Alpha

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.

Roku's active accounts have risen substantially over the past several years. At the end of FY 2016, there were 13.4 million active accounts. That number increased by 243.3% to 46.0 million by the end of Q3 FY 2016. The annual pace of growth, however, has decelerated every year since at least FY 2016, when active accounts grew by 45.8%. In FY 2019, they grew by 36.2%. Analysts expect the number of active accounts at the end of FY 2020 to be 50.7 million, exhibiting a slight acceleration of growth to a pace of 37.4% compared to a year ago.