Roku (ROKU 0.40%) is set to report earnings after the bell on Wednesday, Nov. 7. After a surprise net profit in the second quarter, analysts expect the company to show a $0.12 loss per share for the third quarter on revenue of $169.08 million.

Investors will want to pay attention to several things beyond the headline numbers in order to assess the health of the company. Here's what you should look for when Roku reports.

A television displaying the Roku homescreen.

Image source: Roku.

All about the platform

Roku's platform revenue surpassed its player revenue in the first quarter this year, and it hasn't looked back since. Investors should look for its revenue mix to shift further toward the high-margin platform business in the third quarter for three main reasons.

First, Roku continues to invest in new ad products for marketers to take advantage of its unique data and audience. Roku boasts about its ability to reach so-called cord-cutters and cord-nevers, and it continues to expand its advertising capabilities. This summer it introduced its Audience Marketplace, vastly improving its targeting capabilities. Further improvements in targeting, ad formats, and measurement ought to help drive ad spending on Roku's platform.

Second, Roku is investing in The Roku Channel, its own ad-supported streaming service. Management called out The Roku Channel as a top-five channel last quarter in terms of number of users it reaches in a month. The company has also taken steps to expand The Roku Channel beyond its own devices.

The Roku Channel, which launched about a year ago, is so important because Roku is able to keep a higher percentage of revenue of the ads it shows instead of sharing it with partners. As a result, the growing popularity of The Roku Channel is driving outsized growth in platform revenue.

Finally, more television manufacturers are selling smart TVs licensing Roku's operating system. That means Roku is able to grow its active user base without selling a stand-alone player. What's more, Roku TV users are often more valuable to the Roku platform than Roku Player users due to the deep integration of Roku with the core television experience. The decreasing reliance on hardware sales to drive account growth means player revenue as a percentage of total revenue will continue declining.

Investors should look for management commentary and metrics indicating how all of those factors impacted revenue growth and revenue mix. As long as the company shows strength in growing platform revenue and Roku TV sales, there's no need to worry much about the results of the player segment.

Roku users are growing in every aspect

Investors should also pay attention to Roku's user base and the various metrics it reports about it.

The company ended the second quarter with 22 million active accounts, up 46% year over year. The company has kept its year-over-year user growth relatively stable around the mid-40% range since going public. Look for continued consistency in the third-quarter report.

More importantly, investors should look to see if streaming hours outpaced account growth. That's a sign that users are increasingly engaged with the Roku platform, providing more opportunities to show ads or sell them a premium subscription service.

Finally, investors should look to see how average revenue per user over the last 12 months is trending. Last quarter Roku reported $16.60 in ARPU, up 48% year over year. That's a result of improved advertising capabilities and improved engagement.

Leveraging costs

Another thing worth keeping an eye on is the company's ability to demonstrate operating leverage as it shifts toward more of a platform business.

Roku's investment in the platform business is substantial, including spending on content and advertising technology as well as sales teams and other personnel expenses. Last quarter, R&D expense increased 56% and sales and marketing expense increased 52%. Investors should expect sales and marketing and content spending (found in cost of revenue) to continue accelerating as The Roku Channel and its corresponding ad sales become a bigger part of the business.

But as long as top-line revenue for the platform business is growing at a significantly faster clip than cost of revenue and operating expenses, investors should be happy to see the company investing in the lucrative business. In its second-quarter letter to shareholders, management said it plans to operate the business around break-even as it expands its market share. So expect continued investments, but look to make sure it's resulting in increased engagement, as mentioned above.

Looking beyond the headline numbers and checking the revenue mix, user metrics, and operating leverage at Roku should provide investors with a deeper understanding of how Roku's management is executing on its plans for the business long term.