Investors did not seem to like the information streamed from Roku's (ROKU 0.15%) Q4 and 2021 earnings report released on Thursday. The San Francisco-based ad and media giant offered mixed results as supply constraints weighed on the stock.
Now, with the stock at its lowest point in 18 months, investors have to decide whether Roku is a unique opportunity for prospective buyers or whether its business case makes it an entertainment stock to avoid?
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The Q4 and 2021 earnings report
In Q4, the company reported $865 million in revenue. While that translated into a 33% increase year over year, it fell significantly short of the $894 million analysts had expected. The company blamed supply chain disruptions and higher semiconductor costs, which reduced player revenue by 9% versus the year-ago quarter. Platform revenue rose 49% during that period.
Earnings of $0.17 per share came in much higher than the analyst forecast of $0.07 per share but well under the year-ago earnings of $0.49 per share. Still, faster growth in the cost of revenue and higher operating expense growth weighed on earnings, especially considering the 70% increase in sales and marketing costs.
For the year, Roku reported $2.76 billion in revenue, up 55% year over year. This fell just short of the $2.79 billion analysts had predicted, though the $1.71 per share in net income was well ahead of the anticipated $1.60 per share.
Moreover, lowered expectations could also affect the next quarter. For Q1 2022, the company forecasts revenue of $720 million. This would mean a 25% increase from Q1 2021 but also means analysts will have to lower the previous estimate of $749 million in revenue for that quarter.
Following this news this week, the earnings beats did little to stem a sell-off in after-hours trading, bringing further pain for a stock that has fallen by more than 75% over the last 12 months (Corporate Event Data provided by Wall Street Horizon.)
Where Roku stands
Indeed, supply constraints continue to affect the business. TV sales have not returned to pre-pandemic levels. However, the company better managed inventories with its much smaller players, allowing Roku to insulate customers from some of the rising costs.
Additionally, the service side of the company continues to deliver growth. The company's user base has grown to 60 million, up 17%, while total streaming hours of 19.5 billion rose 15%. Roku's becoming the No. 1 streaming platform in North America has helped boost this growth. This occurred as it built on Roku TV in markets like the U.K. and Brazil. It also brought Roku TV to Chile and Peru and made its streaming player available in Germany.
Additionally, the company generated $41.03 in average revenue per user (ARPU), which was 44% higher than year-ago levels. ARPU continues to increase as more advertising moves to Roku's platform. Roku controls an operating system designed specifically for television advertising, an ecosystem that can continue to drive rapid growth as the world switches to streaming video.
Moreover, investors can buy this stock at a considerable discount. Its price-to-sales (P/S) ratio of 6 is its lowest sales multiple since the market sell-off in early 2020.
Making sense of Roku's earnings
Roku has fallen to a level that new investors could find attractive. Indeed, higher supply chain and semiconductor costs could weigh on the company in the near term.
However, with the stock down by more than 75% from its 52-week high, the market may have punished the stock too severely. Moreover, the P/S ratio is at its lowest level in nearly two years, a valuation that could help make Roku a favorite streaming stock for 2022.
