Roku Inc (NASDAQ:ROKU) saw a nasty reversal and sell-the-news reaction on Friday after reporting in-line EPS and an upside beat on revs for Q4 2019, and issuing strong top-line Q1 and FY 2020 guidance. The big point here is that the strong Q4 and strong top-line guide was expected because of the Disney+ tailwind in effect. What wasn’t expected was the company’s EBITDA warning, which is really about higher than expected investments in incremental gross profit expansion through pushing for more security in market share.
In other words, it’s becoming a little more expensive to maintain its place in the streaming market pecking order.
Roku deserves a TON of credit for doing pretty much everything right -- the company remains very well positioned for the "streaming decade ahead', as they put it in the shareholder letter. If we put a 10x multiple on the $1.2 bln in platform (mostly advertising) revenue guidance for 2020 (+62% yr/yr on top of 78% growth in 2019) and a 2.5x multiple on the $400 mln in player revenue, we get a a $13 bln company (stock price ~$110/share) vs. the current $15 bln market cap. Roku's guidance is likely conservative and I guess you can make the case for a higher multiple on the platform revenue given the growth rate, the strength of the secular streaming trend and the current market environment.
Roku Inc (NASDAQ:ROKU) operates a TV streaming platform. The company operates in two segments, Platform and Player. Its platform allows users to discover and access various movies and TV episodes, as well as live sports, music, news, and others.
It also provides advertising products, including videos ads, brand sponsorships, and audience marketplace program; and manufactures, sells, and licenses TVs under the Roku TV name. In addition, the company offers streaming media players and accessories under the Roku brand name; and sells branded channel buttons on remote controls.
It provides its products and services through retailers and distributors, as well as directly to customers through its Website in the United States, Canada, the United Kingdom, France, the Republic of Ireland, Mexico, and various Latin American countries.
Our ROKU Earnings Summary:
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Roku reports EPS in-line, beats on revs; guides Q1 revs above consensus; guides FY20 revs above consensus
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Reports Q4 (Dec) loss of $(0.13) per share, in-line with the S&P Capital IQ Consensus of ($0.13); revenues rose 49.1% year/year to $411.23 mln vs the $392.69 mln S&P Capital IQ Consensus and vs prior guidance of $380-396 mln.
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Active accounts rose 36.1% yr/yr to 36.9 mln. ARPU rose 29% to $23.14. Streaming hours rose 60% to 11.7 bln.
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Platform revenue rose 71.5% yr/yr to $259.6 mln.
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Adjusted EBITDA was $15.1 mln vs prior guidance of $7-12 mln.
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Co issues upside guidance for Q1, sees Q1 revs of $300-310 mln vs. $299.08 mln S&P Capital IQ Consensus.
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Co guides to Q1 adjusted EBITDA of $(23)-(18) mln vs consensus of $6.3 mln.
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Co issues upside guidance for FY20, sees FY20 revs of $1.58-1.62 bln vs. $1.56 bln S&P Capital IQ Consensus.
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Co guides to FY20 adjusted EBITDA of $(10)-10 mln vs consensus of $65 mln.
Our ROKU Conference Call Notes:
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The launch of Disney+ (DIS) last November was immensely successful. When DIS reported 1Q20 earnings on Feb. 5, it disclosed that Disney+ subscribers doubled from the end of Q4 to 28.6 mln. Since ROKU earns a slice of every Disney+ subscriber that comes through its platform, the rapid subscriber expansion of Disney's streaming product flows directly into ROKU's growth.
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Consumers continue to "cut the cord" and transition from cable companies to over-the-top services such as ROKU.
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This is reflected by the 4.6 mln jump in new active accounts in Q4, representing yr/yr growth of 36%. The popularity of new streaming content from DIS, Apple (AAPL), and Netflix (NFLX) are helping to accelerate this movement.
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The combination of the general cutting the cord trend and strong demand for new streaming content led to a 72% surge in platform revenue to $259.6 mln.
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ROKU's business model of selling affordable TVs that embed its platform is highly effective.
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A healthy holiday shopping season drove 33% growth in hardware to $151.6 mln.
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The company believes it is only in the beginning stages of its growth curve. Therefore, it plans to ramp up investments this year with an emphasis on opportunities in advertising, its Roku Channel, and international expansion.