With much of the world sheltering in place as governments large and small issue stay-at-home orders to combat the spread of COVID-19, it should come as little surprise that people are watching more TV. As the top streaming TV platform in the U.S., Roku (NASDAQ:ROKU) is a likely beneficiary of that trend. Yesterday, the company provided an update for investors, detailing how the coronavirus outbreak is affecting its business and providing some preliminary results for the first quarter.
Here's what investors need to know.
Engagement is soaring
Roku expects revenue in the first quarter to come in at $307 million to $317 million, ahead of its prior outlook of $300 million to $310 million in sales. Gross profit, on the other hand, will be slightly lower than initially predicted at $139 million to $144 million. Roku's estimates for net loss ($55 million to $60 million) and adjusted EBITDA (negative $18 million to negative $23 million) are unchanged.
In terms of operating metrics, Roku's streaming platform is seeing higher engagement from all the people stuck at home. The gains in engagement are more than offsetting the effects of a new "Are you still watching?" feature that Roku recently rolled out. That feature prompts users after extended periods of inactivity and reduces hours streamed. It's not as if streaming content to a nonexistent (or asleep) audience is all that valuable to begin with.
Roku added 2.9 million active accounts in the first quarter, bringing its total to 39.8 million. That comes after Roku added a record 4.6 million active accounts in the fourth quarter. The company's business is seasonal, and these were the strongest first-quarter gains in active accounts that Roku has ever reported.
Streaming hours in Q1 jumped 49% year over year to 13.2 billion. Not all of that increase is just attributable to account growth -- the average number of hours streamed per active account continues to march higher, hitting a new record of approximately 332.
"Consumers are turning to Roku now more than ever," CEO Anthony Wood said in a release. "As the leading TV streaming platform in the U.S., Roku is proud to provide easy access to live news, free movies and TV, great paid content, and helpful programming for individuals and families who are sheltering at home."
Roku is also withdrawing its 2020 guidance due to all of the COVID-19 uncertainties. The streaming tech company had previously expected 2020 revenue to be in the range of $1.58 billion to $1.62 billion. Many companies across various industries have been tapping different forms of debt to beef up their balance sheets to better weather the crisis, and Roku is no different. The company said it drew down a $70 million revolver and ended the first quarter with $587 million in total cash.
Advertisers have been broadly reducing spending, and Roku's platform business is predominantly driven by ad revenue. Wood added that management expects "some marketers to pause or reduce ad investments in the near term."
Roku will report full first-quarter earnings results on May 7.