Roku Posts Strong Q2; Growth Appears to Be Slowing Down

Roku ROKU handily beat expectations during the second quarter of 2021. Total revenue increased 81% versus a year ago to $645 million, topping the high-end of expected range management provided last quarter and the FactSet consensus projection. Customer metrics during the quarter, coupled with management’s third quarter outlook and somewhat muted commentary concerning the second half of 2021, point to slowing growth ahead. We didn’t hear anything that materially changes our long-term view on the firm, especially given the noise the pandemic has introduced.

We don’t expect to materially change our $170 fair value estimate and we view the shares as materially overvalued, pricing in unrealistic expectations for growth in a very competitive market.

While the revenue growth was impressive, Roku only added 1.5 million accounts, down from 2.4 million last quarter and 3.2 million a year ago. Active accounts increased 28% year over year to 55.1 million. Streaming hours increased 19% year over year but declined 5% versus the prior quarter, the first sequential decline on record. The easing of pandemic restrictions and nicer weather across much of the U.S. certainly impacted usage during the quarter, so it’s hard to draw many conclusions from these numbers. Usage per account remains 8% higher than during the same period in 2019 and average platform revenue per account continues to move higher, increasing 46% on a trailing 12-month basis.

Management indicated that the business benefited from both increased ad sales, with ad impressions doubling year over year, and distribution fees. The firm has benefited from the launch of several new streaming services over the past year as firms engage with Roku to drive demand. The Roku Channel also posted solid viewership growth with streaming hours more than doubling versus a year ago. The release of original programming acquired with the Quibi acquisition drove much of this growth.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.