Roku Earnings: Weak Ad Revenue Market Will Remain a Drag on Top-Line Growth Throughout 2023

Roku 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.

Net new account activations of 1.6 million showed that the strong fourth quarter did not pull forward all of the growth. Roku remains the top smart TV operating system with 43% market share in the first quarter, more than the next three competitors combined. Streaming hours improved 20% year over year to hit 25.1 billion, with streaming hours per account per month up 3% to 118.2.

Despite the positive engagement metrics, average platform revenue per account dropped 16% year over year to $2.99 per month, the second straight quarter with a double-digit decline. The drop is not completely unexpected, given the generally weak ad market in the United States. Management projects that the ad scatter market will remain weak through 2023. Roku is more dependent than traditional linear networks on the near-term scatter market, which advertisers can pull out of quickly. Roku does expect to gain more ad revenue from advertisers that are looking for effectiveness and engagement, as the company can offer a large audience that continues to increase its viewing, a rich dataset from that viewing, and the ability to immediately drive engagement for its streaming partners.