Roku (ROKU -1.60%) took shareholders by surprise in a good way last week. The company reported fourth-quarter revenue and earnings per share well ahead of what analysts were expecting. Revenue surged 46% over to the year-ago quarter and earnings per share came in at $0.05, beating a consensus analyst estimate for $0.03. During the company's fourth-quarter earnings call, Roku CEO Anthony Wood cited the company's consistent execution and an "unstoppable shift to streaming" as some of the key drivers for the quarter.
Looking beyond the quarter's headline figures, here are some insightful quotes from the company's fourth-quarter shareholder letter to help investors get a deeper understanding of the company's momentum.
Roku Channel. Image source: Roku.
These are the early innings
First and foremost, investors should realize that management believes there's plenty more strong growth to come. "While our growth has been impressive, we believe we are still only beginning to capitalize on the large opportunity streaming presents," management said in its fourth-quarter shareholder letter.
Management didn't let down with its full-year outlook. The company guided for revenue to be between $1 billion and $1.025 billion, up from revenue of about $743 million in 2018. "With our fundamental strategic advantages and continued strong execution, we believe we are well positioned to deliver another excellent year," management said in the letter.
Huge upside ahead for connected TV advertising
The shift of marketers' ad spend away from traditional television to connected TV has plenty of runway left. Just look at programmatic ad-buying platform The Trade Desk (TTD -6.23%), where connected TV ad spend on its platform increased 525% year over year in the company's fourth quarter of 2018. It's no surprise, therefore, that Roku is bullish on its outlook for further growth in platform revenue as advertisers ramp up spending on its targeted, digital ads.
Roku explained:
In the TV streaming world, viewer share is well ahead of TV ad budget share, but the rapid growth of our Platform revenue suggests advertisers are starting to respond. This anticipated spending pattern shift, combined with substantial growth in our ad inventory and audience reach, should drive sustained, rapid advertising growth.
Roku's platform revenue, or revenue generated from users on its platform through ads and subscriptions, soared 77% year over year in Q4. With about two-thirds of platform revenue coming from advertising services, management's optimistic outlook for marketers' continued shift away from traditional television ads to connected TV ads bodes well for Roku's business.
Roku's international opportunity
Roku investors should also take note of Roku's opportunity to grow internationally.
Notably, management said that even though its international market represents one of the company's top four areas of investment, investors shouldn't expect to see the fruit of these investments in 2019.
While we continue to see a lot of headroom to grow active accounts in the U.S., we are increasing our investment internationally. These are still early days for us on the international front, and thus international distribution is unlikely to be a major driver of 2019 account growth.
In 2020, however, these investments will likely begin to have an impact on account growth, management said. As far as revenue goes, the company said it expects "international platform revenue to lag user growth, as it normally does, since scale is the first step, followed by monetization."
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