What happened
Shares of Roku (ROKU 0.58%) are up 88% this year, helped by a continued rise on Friday. The company reported earnings for the third quarter, and some metrics are stunning. For example, Roku users streamed 14.8 billion hours of video content in the quarter -- or over 1.6 million years' worth, if that's easier to understand. That outsized usage logically translated to robust financial results, sending Roku stock up 12% as of 11:30 a.m. EDT today.
So what
In the third quarter, total revenue was up 73% year over year to $452 million. This includes both the player segment (hardware devices) and platform segment (operating system, payment processing, and more). The company had refrained from giving formal guidance for the quarter, since there was a lot of uncertainty surrounding advertising revenue. But ad spend was anything but weak: Roku's monetized video-ad impressions surged nearly 90% year over year.
Image source: Getty Images.
Perhaps most surprisingly, Roku reported operating income instead of a loss in the quarter. The company walks a trail blazed by many other growth stocks, trading present profitability to pursue revenue growth.
Of its two revenue segments, the platform segment is more profitable. This quarter, platform revenue was up 78% from last year, and its gross margin expanded to 61% from 57% last quarter. This double-growth driver for profits was enough to boost its operating income to $12 million versus a $26.5 million loss last year.
Now what
The operating profit might be a one-quarter wonder for now. Roku had cut back on capital expenditures when the coronavirus pandemic began, and spending hadn't fully returned during Q3. The company does expect to increase spending to continue gaining market share in streaming video.
Roku management also expects revenue to keep growing, albeit slower than in the third quarter. For the upcoming fourth quarter, it expects revenue growth in the mid-40% range.
