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Roku's Q3 Earnings Reveal Continued International Expansion

By Parkev Tatevosian, CFA – Nov 7, 2021 at 10:05AM

Key Points

  • Roku increased active accounts by more than 20% in Q3.
  • The company expanded into Germany with plans to enter Peru and Chile later this year.
  • Share prices fell more than 8% on supply chain issues following Roku's earnings report.

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The company reported third-quarter earnings that disappointed investors, but its long-term growth trajectory moved forward.

Streaming-content enabler Roku (ROKU -0.70%) is the most popular TV-operating platform in the U.S. The company is setting its sights on international markets, and its most recent earnings report shows progress on that front.

Management sees a massive opportunity worldwide with 1 billion households that have a broadband connection. Let's dig into Roku's third-quarter earnings to assess the steps it's taking to reach a larger audience. 

A family watching television.

Image source: Getty Images.

Roku's international expansion follows a familiar recipe

Interestingly, Roku reported having 56.4 million active accounts by the end of its third quarter. That's up 23% from last year's total of 46 million active accounts. Roku signs up new accounts by selling media players that connect to TVs and by making deals with TV manufacturers to make Roku's platform the default operating system.

Roku management's estimate of 1 billion broadband households is a massive opportunity that could provide several years of growth from the third quarter's 56.4 million accounts. The company got a significant boost in new accounts since the pandemic onset as hundreds of millions of folks were cautious about leaving their homes. That spurred demand for in-home entertainment options where Roku was a prime beneficiary. 

I find it encouraging that engagement and customer acquisition stays resilient even as the world is making progress in its battle against COVID-19. To spur further account growth, Roku launched in Germany during Q3 and now has more than 2,000 channels, including apps from local and global providers. What's more, Roku is planning to launch in Chile and Peru later this year.

Recently, CEO Anthony Wood discussed Roku's international strategy, which is essentially the same as the one it has used here:

The shift to streaming around the world continues. Our overall strategy is to basically copy what has worked for us in the U.S. and use that internationally... So that's the overall strategy. And as we enter new international markets, we're seeing that consumers like our products. They use them a lot. And our market share grows in those countries as we enter the country. So our international strategy is working for us.

As mentioned earlier, Roku has become the top-licensed TV platform in the U.S. Its method of acquiring new customers has proven to be successful, so why change it when going overseas? 

Roku stock sells off after Q3 earnings 

Despite making progress on its path to reaching a larger audience, Roku saw its stock tank more than 8% on the day following its Q3 earnings announcement. The company pointed out that supply chain disruptions would slow its growth in the near term and also decrease its profit margins.

Investors focusing on the near-term issues and selling Roku stock are providing an opportunity for longer-term investors to buy Roku stock at a lower price. The stock is not cheap, trading at a price-to-sales ratio of 17, but considering the massive opportunity ahead of it and the recent sell-off, it may be worth adding Roku to your list of stocks to buy.

Parkev Tatevosian owns shares of Roku. The Motley Fool owns shares of and recommends Roku. The Motley Fool has a disclosure policy.

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