Roku (NASDAQ:ROKU) opened sharply lower on Thursday morning, having posted its third-quarter results the night before. It wasn't a rough report, but expectations had been high with Roku reigning as this year's biggest gainer among large-cap stocks.
The stock markdown is warranted. Revenue growth decelerated after three quarters of acceleration. The pace slowed on both the platform and hardware fronts. Roku raised most of its full-year guidance metrics, but it did dial back its goal for adjusted EBITDA. You don't see a stock more than quadruple in 2019 and keep heading higher unless it's firing on all cylinders. However, dig a little deeper into Roku's report and you will find more than a few encouraging signs that its fundamentals are stronger than ever. Let's go over some of the bright spots.
1. The audience keeps expanding
There are now 32.3 million homes leaning on Roku as their gateway to streaming, 36% more than the active accounts it was entertaining a year earlier. We're also comfortably ahead of the 30.5 million users it was servicing at the end of June.
There are a lot of ways for folks to turn their TVs into a treasure trove of limitless digital content. As long as Roku's popularity keeps growing, it's hard to bet against the pioneer.
2. Engagement is also on the rise
Roku users went through 10.3 billion hours of content, topping the eight-figure milestone for the first time. The 68% surge in streaming on a 36% uptick in active accounts is impressive, as it means that the average user is spending more time streaming through Roku than the year before, but a deeper dive shows how hooked these consumers are on the platform.
Divide the time spent streaming by the number of users and then by the 92 days in the third quarter, and you arrive at an average of 3.47 hours of content per user. That is a lot of time spent on a platform, and it tops the second quarter's record of 3.39 hours a day. A year ago we were at a still-impressive 2.83 hours a day.
3. Roku is getting better at the monetization game
Growth decelerated in some important categories during the third quarter. Total net revenue, active account, and hours spent streaming saw year-over-year growth slow during the third quarter relative to Roku's second-quarter showing. Average revenue per user, on the other hand, is putting the pedal to the metal.
The $22.58 average revenue per user that Roku has delivered over the trailing 12 months is 30% ahead of where it was a year earlier. The metric had risen at a still-hearty 27% clip three months earlier. As Roku's audience grows it becomes a larger player in connected TV advertising. The more time someone spends on Roku, the more comfortable they become signing up for one of the thousands of apps available directly through Roku, meaning it scores a piece of the action.
4. The stock has still roughly quadrupled in 2019
Bears will be quick to say "I told you so," but a year-to-date chart should suffice to shut them up. Roku began the year at $30.64. Thursday morning may seem rough, and the shares will remain volatile throughout the day. However, the stock still finds itself roughly quadrupling in 2019.
Roku will continue to be this year's best-performing large cap, and it isn't even close. A rough trading day doesn't wipe away the spectacular year that Roku is having. It remains a top stock in 2019, and things should only get better during the current quarter with all the exciting new premium streaming services launching ahead of the holiday shopping season.