The evolution of streaming video is quickly diverging into two very separate and distinct paths. The first is the monthly paid subscription with no (or almost no) commercials. The second is the free, ad-supported service that follows the template that has worked so successfully for broadcast television for decades.

Streaming platform Roku (ROKU -3.11%) has made a name for itself by successfully navigating the second path, which is becoming increasingly more lucrative for the company. In what's becoming a regular occurrence, Roku reported first-quarter earnings after the market closed on Wednesday that soared past both the company's lofty guidance and analyst expectations.

Let's look at several catalysts from the earnings report that helped drive the stock up more than 8% in after-hours trading on Wednesday.

A Roku TV showing featured free content.

Image source: Roku.

Soaring revenue growth

Roku had warned investors that its first quarter is "our seasonally softest quarter from a revenue perspective," and not to expect the heady 46% year over year growth it generated during the fourth quarter. 

It came as a surprise then, when Roku generated revenue of $206.7 million, up 51% year over year, sailing past both the company's forecast for $188 million and analysts' consensus estimates of $192 million. Platform revenue continued to dominate, up 79% year over year to $134 million, while player revenue increased 18% to $72 million.

This performance resulted in smaller than expected losses, with a loss per share of $0.09, compared with the $0.26 loss analysts had anticipated.

Impressive user metrics

Even in the wake of a killer fourth quarter, Roku continues to put up impressive user metrics in what's a seasonally soft quarter. Active accounts grew to 29.1 million, up 40% year over year -- the same as its growth rate last quarter.

Its customer engagement is climbing as well, as streaming hours grew to 8.9 billion, up an incredible 74% year over year, accelerating from the 69% growth last quarter. Average revenue per user grew 27% year over year to $19.06 on a trailing-12-month basis.

Increasing guidance

Investors are big fans of the "beat and raise," when a company exceeds its guidance (as already outlined) and raises its full-year forecast in the wake of its success.

Roku has done just that. In its fourth-quarter report, management said it expected revenue in 2019 of $1 billion, up 36% from 2018, and gross profit of about $453 million, also up 36% year over year, while targeting adjusted EBITDA at breakeven.  

After its blowout first-quarter results, Roku is now forecasting full-year revenue of $1.04 billion, representing 40% year-over-year growth, with gross profit increasing to $470 million, resulting in adjusted EBITDA of $15 million, all at the midpoint of its guidance.

A long runway

Roku said in its shareholder letter: "We estimate that in Q1 2019, more than one in three smart TVs sold in the U.S. were Roku TVs, making the Roku OS the [No. 1] selling smart TV OS in the U.S." That statistic is up from the one in five it cited last quarter. 

That's not all. The Roku Channel now offers more than 10,000 free, ad-supported movies and TV episodes and more than 24 live streaming channels. The company also boasts partnerships with more than 30 premium channels, including HBO, Showtime, Epix, and Starz.

The combination of ad-supported content, live programming, and premium subscriptions continues to drive user growth and provides a large and growing opportunity for Roku.