Shares of Roku (NASDAQ:ROKU) are rallying, and now it's time to see if those big gains are justified. The fast-growing streaming video pioneer reports fourth-quarter results shortly after Thursday's market close, and the expectations are heightened heading into the telltale report. The stock has more than doubled -- up 102% -- since bottoming out on Christmas Eve's trading day.
Bears will argue that the recent gains aren't warranted. The stock took a 22% hit the day after it posted poorly received third-quarter financials, and that was after rallying ahead of that disappointing report. Naysayers can also point out that tech giants are putting out subsidized gadgetry to woo video buffs to their streaming platforms. Critics can also argue that Roku Channel -- the company's first foray into content -- blurs the agnosticism that has made its operating system so popular as a catch-all portal for most services and TV manufacturers. The battle lines are drawn, and we'll know soon which side won the potent holiday-containing quarter.
Place your bets
Bulls will argue that Roku has already won the battle, and not just because its stock has doubled over the past eight weeks. It preannounced some tantalizing year-end metrics in early January. It revealed that it closed out 2018 with more than 27 million active accounts on its operating system, at least 40% ahead of where it was when the year began. Roku also announced that consumption on its platform rose 68% to 7.3 billion hours for the quarter, accelerating from the 63% year-over-year increase it posted in the third quarter.
Roku didn't offer up its year-end financial performance -- that will come tomorrow afternoon -- but the trend through the past few quarters has seen average revenue per user outpace its audience growth. Growth in the fourth quarter is often held back by slower-growing player revenue, with the holidays finding folks gifting Roku hardware, but it should be another monster quarter when it comes to platform revenue.
Analysts see revenue rising 39% to $262.1 million, near the high end of the $255 million to $265 million that Roku itself was forecasting in early November. The top-line spurt would match its third-quarter growth, but will be a more impressive feat this time around given the heavier weighting on slower-growing hardware sales. Wall Street pros are targeting a profit of $0.03 a share, a decline from a year earlier but not a deal breaker at this point in its growth cycle. Expanding the breadth of its Roku OS reach is more important than bottom-line victory laps.
Roku will still have to face some hard questions. The competition isn't backing down, and we're still not over the trade tensions with China that sent Roku lower in December since a few of its smart TV manufacturing partners are based out of the world's most populous nation. Will the initial success of Roku Channel present a conflict of interest for the other services that provide platform revenue to Roku? Its year-end chest-thumping last month seems to make strong revenue growth in the fourth quarter a given, but can it come through with strong guidance?
Roku stock is hot again. It will be volatile again on Friday, but that doesn't have to be a bad thing if it can live up to recent bullish momentum.