Roku warns of tougher bar for growth ahead. An analyst says that is its 'fundamental risk.'

By Bill Peters

Company is 'operating against massive players who increasingly realize the importance of streaming aggregation,' analyst says

TV-streaming service Roku Inc. on Thursday forecast second-quarter sales that were above expectations, but warned of a higher bar for growth up ahead and moderating profit in the second half of the year.

The higher expectations came as the company - which runs videos from streaming platforms like Netflix as well as live TV through a single screen - tries to compete with deeper-pocketed tech companies for viewers and find more ways to squeeze ad and subscription sales out of its platform.

Roku (ROKU) reported first-quarter sales of $882 million, up 19% year over year, with a net loss per share of 35 cents. Both were better than expected. Streaming households rose 14% year over year, while streaming hours were up 23%.

The company said it expected second-quarter sales of $935 million. That was above FactSet estimates for $926 million. But executives, in the company's letter to shareholders, warned of more difficult comparisons, as the financial benefits of raising prices fade and more people seek out cheaper streaming options with ads.

"Looking ahead, we face difficult year-over-year growth rate comparisons within streaming-service distribution activities," the letter said. "This headwind is due to past price increases and a higher mix shift toward ad-supported offerings."

Shares fell 3% after hours.

Streaming services, broadly, have raised subscription prices in recent months in an effort to appease investors seeking more profitability out of the industry, after it spent big on new shows and films to draw subscribers in years past. Increasingly, those services are also competing with cable TV, and with each other, over live-sports broadcasts.

"Live sports are still accelerating the shift of viewers from traditionalTV to streaming and were a driver for [subscription video on demand] sign-ups on our platform in Q1," Roku said in its letter to shareholders on Thursday.

"For this year's Super Bowl, we drove sign-ups for Paramount+ through both a Premium Subscription in the Roku Channel and the Paramount+ [direct-to-consumer] app," the letter added.

During the company's earnings call, executives also discussed more ways to make money off the Roku home screen, including by pushing video ads.

Jeffrey Wlodarczak, the chief executive and media analyst at Pivotal Research Group, said the digital ad market's recovery has been uneven, after businesses, concerned about a downturn, ratcheted back their ad spending.

He said that while Roku was already popular, more deeper-pocketed companies - including Amazon.com Inc. (AMZN), Alphabet Inc.'s (GOOG) (GOOGL) Google and Walmart Inc. (WMT), which has agreed to buy smart-TV maker Vizio Holding Corp. - had taken notice.

"The fundamental risk for ROKU is they are operating against massive players who increasingly realize the importance of streaming aggregation and are able to subsidize their streaming business with their high free-cash-flow core businesses," he said.

He said that as more ad space online opens up - particularly as Amazon expands the ways businesses can advertise on its sites - ad prices could fall.

"We also believe over time there will either be consolidation among streaming players (or players shutting down their streaming offerings altogether) enhancing the power of the remaining streamers over distributors such as ROKU and potentially reducing revenue streams/profitability," he said.

-Bill Peters

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04-25-24 2008ET

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