Coming into 2018, Roku (NASDAQ:ROKU) had its share of doubters. Following the company's fourth-quarter earnings report in February, even in light of impressive growth, the market bid down Roku's shares by 20%. The company provided guidance lighter than what Wall Street was modeling, and the shares got punished. Another positive report in May helped ease investors' concerns, but most were looking for additional assurances that the company could deliver the goods. When the company delivered its latest financial report, Roku did all that and more -- and the stock soared 21%.

For the just-completed second quarter, Roku reported net revenue of $156.8 million, up 57% year over year and sailing past analysts' consensus estimates of $141.5 million. Earnings per share were a surprise as well, as the company broke even, far outpacing the $0.15 loss per share expected by analysts. Roku said this was the fastest rate of revenue growth since the fourth quarter of 2013.

A television showing the Roku channel

Image source: Roku.

The raw numbers


Q2 2018

Q2 2017

Change (YOY)

Net revenue

$156.8 million

$99.6 million


Income (loss) from operations

($13.4 million)

($0.1 million)


Diluted earnings per share




Data source: Roku Second-Quarter Financial Report.

Strength in Roku's platform segment drove the gains, as revenue of $90.3 million skyrocketed 96% year over year, while revenue from the player segment increased 24% to $66.5 million. The platform segment delivered significantly higher gross margins, a whopping 69.8% compared to the margins of 24% in the player segment. This helped drive gross profit of $77.8 million, up 107% compared to the prior-year quarter. This all helped deliver more to the bottom line.

Active accounts increased 46% year over year, cresting 22 million, while streaming hours jumped 57% to 5.5 billion hours. Another telling user metric was average revenue per user (ARPU), which grew to $16.60, up 48% compared to the prior-year quarter. The combination of a growing user base and increased spending per customer helps amplify Roku's improving revenue.

Another contributing factor in Roku's stellar performance was its spending discipline. Total operating expenses rose 53% year over year -- a lower rate than the company's 57% revenue growth, helping to decrease the company's losses.

An interesting nonfinancial metric that the company shared: one in four smart TVs sold in the U.S. in the first half of 2018 were Roku TVs. This gives the company a path to a growing installed base of active users.

In its shareholder letter, Roku management said:

Robust active account growth expanded the reach and scale of our TV streaming platform, while at the same time Roku captured a bigger share of TV advertising budgets and continued progress on monetization. Our investments are delivering a better streaming experience for consumers, bigger audiences for content owners, and more effective marketing tools for brands.

Looking ahead

For the upcoming third quarter, Roku management expects net revenue in a range of $164 million to $172 million, an increase of 34.6% year over year at the midpoint of guidance and above analysts' consensus estimates for $165.04 million. The company is guiding for a net loss of between $13 million and $18 million.

In light of Roku's strong performance, the company raised its full-year outlook to revenue in a range of $710 million and $730 million and a net loss of between $10 million and $22 million. The company said it will continue to invest its increasing gross profits back into key growth areas, so expect those losses to continue for the foreseeable future.

Roku has gone a long way toward convincing investors that the company can deliver, though it's important to remember there will likely be some bumps in the road along the way.