Roku Earnings: Growth Again Outpaces the Weak U.S. Ad Market

Despite a challenging advertising backdrop, Roku 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.

We are raising our fair value estimate to $70 from $65 to account for slightly faster top line growth and better operating leverage on research and development costs.

Net new account activations of 1.9 million was Roku’s strongest second quarter outside of pandemic-fueled 2020. Roku continues to maintain its share in the U.S. as the firm’s portion of TV sales in the first half of the year was more than the next three competitors combined. With the launch of its own TV in May, Roku is less dependent on third-party TV makers like TCL and Hisense. Streaming hours improved by 21% year over year, the fourth consecutive quarter over 20%, to hit 25.1 billion with streaming hours per account per month up 4% to 115.3.

Despite the positive engagement metrics, average platform revenue per account dropped 9% year over year to $3.42, the third straight quarter of decline. The ongoing decreases were not completely unexpected given the generally weak ad market in the U.S. Management projects that the ad market will remain weak through 2023 as the media and entertainment industry will likely pull back spending due to a limited release schedule as a result of the ongoing talent strikes in Hollywood. Roku does expect to generate more ad revenue from new placements like Roku City, the screensaver that features ad billboards.