Roku Could Swing to a Loss on Weak Ad Spend, Despite Account Growth

Roku Inc. (ROKU), among the top nine entertainment platforms in the U.S. by app downloads, likely swung to net losses on falling revenue for the fourth quarter amid a challenging environment for ad sales.

Roku's net losses attributable to shareholders could be $241.5 million, the widest in company history, compared to $23.7 million in income for the prior-year quarter, according to analyst estimates from Visible Alpha. Losses per share could be $1.73, against earnings per share (EPS) of $0.17 in the same period last year. Revenue is expected to decline 7.7% to $798.4 million.

Roku will report fourth quarter and FY 2022 results after markets close on Feb. 15.

Inflation weighed on advertising spending and smart TV sales, both of which are crucial to Roku's business. The macroeconomic environment is also slowing the shift from linear TV to digital ad spending, despite moves from streaming platforms like Netflix Inc. (NFLX) and Disney+ to offer ad-supported subscription plans.

"The bottom line is that current macroeconomic trends likely set Roku back on its growth trajectory by roughly a year," wrote Wedbush analysts Alicia Reese and Michael Pachter in a recent report.

Yet they're optimistic Roku can take advantage of improved business conditions. "We think there is still significant runway ahead for shifting ad dollars from linear TV to digital, and Roku is poised to take a meaningful and growing share of this shift."

Roku shares have recovered early in 2023 but remain down 66% in the last year, compared with a 24% drop for the S&P 500 Communication Services Index.

Sources: Visible Alpha; Roku Q4 2022 account estimate; Roku Q4 2021 and Q4 2020 account figures

The Key Metric: Active Accounts

Key to Roku's advertising business is the number of active accounts on its platforms, a measure of the size of its user base. Roku defines active accounts as the number of distinct user accounts that have streamed content on its platform sometime within the past 30 days. The company does not distinguish between unique individuals streaming content on the same account, though the number of active accounts is closely correlated with the number of viewers, and thus the potential reach for advertisers.

Despite macro headwinds, Roku's underlying user base is increasing. The company said in early January that it expects a record of over 70 million active accounts for the fourth quarter of 2022. This is at least 16% above 60.1 million active accounts for the prior-year quarter.