Company Reports

Roku had a very good first quarter, with impressive user engagement driving strong revenue growth and EBITDA that is tracking better than our full-year forecast. Management tempered expectations a bit for the second half of 2024 but believes it is setting itself up for acceleration in 2025. However, we’ve taken a deeper look at Roku, and we’re concerned that its customer acquisition costs must remain elevated for the account base to continue growing at a healthy clip. We’re reducing our fair value estimate to $50 per share from $75 while maintaining our no-moat rating.

Roku provides the most-used streaming operating system in the US through the streaming devices and televisions that it manufactures or licenses its name and software to. Roku’s strategy is to remain a leading provider of streaming devices by maintaining low prices and accepting losses in its devices segment. It intends to then drive profits from Roku user accounts. We are skeptical that this is a viable strategy, because we don’t see competitive advantages that are likely to turn the firm toward sufficient profit after a history of generating losses.

Roku's fourth-quarter results exceeded our expectations, and the firm is well ahead of schedule to reach profitability. We think the significant stock decline in after-hours trading was a major overreaction to a muted outlook for the next quarter and some cautious commentary. However, we think the stock had gotten ahead of itself, and the market is also skittish about rumors that Walmart is looking to acquire Vizio, a major Roku competitor. We're maintaining our $75 fair value estimate, leaving the stock fairly valued after the selloff.

Roku had a strong third quarter across nearly all operating metrics, and it surprisingly posted positive adjusted EBITDA after five quarters of losses. The firm expects a good fourth quarter as well and reaffirmed its commitment to continue improving EBITDA. While we generally expect these trends to continue, we expect some of the tailwinds that boosted this quarter’s sales to abate. We’re maintaining our $75 fair value estimate, and the stock is close to fairly valued after a 20% rise on the results.

Roku is the leading streaming platform in the U.S. by hours watched with 87.4 billion hours of content streamed in 2022. The Roku platform provides its users with access to streaming services such as Netflix, YouTube, and Disney+. The company also offers its own ad-supported content channels that feature licensed third-party content. Its namesake operating system is used on not only Roku-branded hardware but also in cobranded TVs and soundbars. Roku generates revenue from advertising, distribution fees, hardware sales, and subscription sales.

Roku will make additional cuts to adjust its cost structure, including its third round of layoffs in less than a year. The cuts will also include office space consolidation, a review of its content portfolio, and reduced use of outside service. As a result, Roku expects to incur impairment and restructuring charges ranging from $260 million to $330 million with the vast majority recorded in the third quarter. The company also issued more detailed third-quarter revenue guidance of $835 million to $875 million, implying year-over-year growth of 10%-15%. We are raising our fair value estimate to $75 from $70 to account for improved operating leverage in 2024 and beyond.

Roku is the leading streaming platform in the U.S. by hours watched with 87.4 billion hours of content streamed in 2022. The Roku platform provides its users with access to streaming services such as Netflix, YouTube, and Disney+. The company also offers its own ad-supported content channels that feature licensed third-party content. Its eponymous operating system is used on not only Roku-branded hardware but also in cobranded TVs and soundbars. Roku generates revenue from advertising, distribution fees, hardware sales, and subscription sales.

Despite a challenging advertising backdrop, Roku handily beat its guidance for second-quarter revenue and EBITDA. Revenue of $874 million easily surpassed management’s $770 million forecast, but more importantly, growth rebounded to 11% after two very weak quarters. Management offered third-quarter revenue guidance of $870 million, projecting that growth will deteriorate slightly to 7% but remain strong. As we expected, adjusted EBITDA losses look to continue in the third quarter, but management remains confident that Roku will generate to positive adjusted EBITDA for 2024.

Roku is the leading streaming platform in the U.S. by hours watched with 87.4 billion hours of content streamed in 2022. The Roku platform provides its users with access to streaming services such as Netflix, YouTube, and Disney+. The company also offers its own ad-supported content channels that feature licensed third-party content. Its eponymous operating system is used on not only Roku-branded hardware but also in cobranded TVs and soundbars. Roku generates revenue from advertising, distribution fees, hardware sales, and subscription sales.

Roku started a potentially challenging 2023 on a strong note as first-quarter revenue came in well ahead of guidance. Revenue of $741 million beat management's $700 million outlook, but growth was still anemic at 1%. Management provided second-quarter revenue guidance of $770 million, projecting that growth will remain at about 1%. The adjusted EBTIDA guidance of a $75 million loss next quarter implies that Roku will post its third quarter with an adjusted EBTIDA margin between negative 9% and negative 11%. We expect the adjusted EBITDA losses to continue in the second half of 2023. We are maintaining our fair value estimate of $65 per share.

Roku is the leading streaming platform in the U.S. by hours watched with 87.4 billion hours of content streamed in 2022. The Roku platform provides its users with access to streaming services such as Netflix, YouTube, and Disney+. The company also offers its own ad-supported content channels that feature licensed third-party content. Its eponymous operating system is used on not only Roku-branded hardware but also in cobranded TVs and soundbars. Roku generates revenue from advertising, distribution fees, hardware sales, and subscription sales.

Roku reported a positive end to a challenging 2022 as fourth-quarter revenue came in well ahead of guidance and net new active accounts tied for the second strongest behind the pandemic-influenced fourth quarter of 2020. While revenue of $867 million was well ahead of the $800 million guidance, growth was the weakest on record at barely above 0% year over year. Management expects first-quarter revenue of $700 million, implying a 5% decline versus the same quarter in 2022. The company still expects to generate positive adjusted EBITDA in 2024, suggesting a second straight year with adjusted EBTIDA losses in 2023. We are maintaining our $65 fair value estimate, which we lowered last quarter to reflect slower revenue growth expectations and sluggish margin expansion as content and research and development costs move higher.

Roku posted a positive third quarter with revenue and EBITDA ahead of the FactSet consensus estimates. However, the management commentary about the weak U.S. ad market continuing into 2023 spooked investors, leading to a 15% decline in the share price in after-hours trading. While the revenue growth of 12% came in well ahead of the 3% quarterly guidance, the third quarter had the lowest growth on record, with more headwinds ahead as the fourth quarter top-line guidance of $800 million implies the first revenue decline quarter for Roku. As a result, we are lowering our FVE to $65 from $80 on lower revenue expectations and slower margin expansion due to higher content and R&D costs.

Roku is the leading streaming platform in the U.S. by hours watched with almost 59 billion hours of content streamed in 2020. The Roku platform provides its users with access to streaming services such as Netflix, YouTube, and Disney+. The company also offers its own ad-supported content channels which feature licensed third-party content. Roku’s eponymous OS is used on not only Roku-branded hardware but also in co-branded TVs and soundbars. Roku generates revenue from advertising, distribution fees, hardware sales, and subscription sales.

Roku reported a weak second quarter with revenue and EBITDA below FactSet consensus. Revenue growth of 18% year over year came in below management’s prior 25% guidance. Management pulled its full-year top-line forecast of 35% growth, which we had viewed as too aggressive. Roku expects the slowing economy to further hurt the ad scatter market, while inflation worries lower consumer spending. The firm forecast 3% growth for the third quarter, which would be the first single-digit growth quarter over the last five and half years. As a result, we are slashing our fair value estimate to $80 from $135 on lower revenue expectations in not only 2022 but over the next five years (14% on average versus 21% previously) due to increasing competition for streaming ad dollars from both incumbent players like Pluto and Hulu and newer ones like Disney+ and Netflix.

Roku is the leading streaming platform in the U.S. by hours watched with almost 59 billion hours of content streamed in 2020. The Roku platform provides its users with access to streaming services such as Netflix, YouTube, and Disney+. The company also offers its own ad-supported content channels which feature licensed third-party content. Roku’s eponymous OS is used on not only Roku-branded hardware but also in co-branded TVs and soundbars. Roku generates revenue from advertising, distribution fees, hardware sales, and subscription sales.

Roku posted a slightly better-than-expected start to 2022 with revenue in line and EBITDA ahead of FactSet consensus expectations for the first quarter. Total revenue came in 28% ahead of the same period last year with management guiding for 25% growth in the second quarter. Despite guiding to sub-30% growth in the first half, management reiterated its full-year top-line guidance of 35% growth, which we believe may be too aggressive given the issues in the streaming market, particularly in the United States. We are reducing our fair value estimate to $135 per share from $150 to account for lower revenue expectations.

Roku is the leading streaming platform in the U.S. by hours watched with almost 59 billion hours of content streamed in 2020. The Roku platform provides its users with access to streaming services such as Netflix, YouTube, and Disney+. The company also offers its own ad-supported content channels which feature licensed third-party content. Roku’s eponymous OS is used on not only Roku-branded hardware but also in co-branded TVs and soundbars. Roku generates revenue from advertising, distribution fees, hardware sales, and subscription sales.

Roku is the leading streaming platform in the U.S. by hours watched with almost 59 billion hours of content streamed in 2020. The Roku platform provides its users with access to streaming services such as Netflix, YouTube, and Disney+. The company also offers its own ad-supported content channels which feature licensed third-party content. Roku’s eponymous OS is used on not only Roku-branded hardware but also in co-branded TVs and soundbars. Roku generates revenue from advertising, distribution fees, hardware sales, and subscription sales.

Roku posted a mixed end to 2021 but shares fell over 20% in aftermarket trading on Feb. 17 due to weak 2022 revenue growth guidance of 35%, significantly below the 55% mark posted in 2021. Management also noted that the firm expects to ramp up operating expense spending that was pulled back in 2021 due to COVID-19 uncertainties. As a result, management expects 2022 adjusted EBITDA to be flat with 2020 on an absolute basis, implying a $300 million drop from 2021. While we view the EBITDA guidance as conservative, we are slashing our fair value estimate to $150 from $195 to account for lower top-line growth and much slower margin expansion.