Couch-tethered streamers continue flocking to Roku (ROKU 0.15%) to guide them through their viewing sessions. Roku announced on Thursday that it has topped 70 million active accounts.
It's a big round number for the company behind the country's most popular video streaming operating system for TVs, commanding nearly double the market share of its nearest rival. Roku had just 60.1 million homes actively engaging with its platform a year ago, making this a respectable gain of at least 16% over that time. It's also entertaining at least 4.6 million more active accounts than it had just three months ago.
The sequential jump is refreshing, but this is a seasonally potent period for Roku. A lot of smart TVs with its operating system built in as well as subsidized Roku dongles were handed over during the gift-giving season in late December. It's still better than the 3.7 million net additions it delivered during the fourth quarter of 2021. It's refreshing news, but there's still a problem here.
Image source: Getty Images.
Getting the balance right
Roku shares moved slightly higher on the news in an otherwise down market day on Thursday. Growth is always a fashionable look. However, with Roku not touching its earlier guidance -- calling for fourth-quarter revenue to clock in with an 8% year-over-year decline -- something has to give here.
An expanding audience is a welcome sight, but you don't get to an 8% decline in revenue with a 16% spike in users unless another key metric is going the wrong way. Spoiler alert: It's not engagement. Roku also mentioned in its Thursday release that its user base streamed a record 23.9 billion hours of content in the fourth quarter, a 23% increase over the past year. Folks are spending more time on Roku -- not less -- over the past year.
This leaves average revenue per user (ARPU). As Roku's platform has grown over the years, scalability and its widening audience have made it attractive to marketers. Since Roku's hub is free to use, ad revenue is its bread and butter. ARPU has steadily moved higher over the years, and in the third quarter it clocked in at $44.25. In other words, divide platform revenue by its user base and you get $44.25 per account over the past 12 months.
If revenue slipped 8% in the fourth quarter on a 16% increase in active users the culprit will be a combination of weaker hardware sales and a rare dive in ARPU. Roku has had challenges with its player revenue as supply chain constraints and promotional activity have weighed on profitability as well as top-line growth in that part of the business. However, a decline in ARPU will rattle investors. Even the connected TV advertising market has taken a hit in the broader ad sector slide as 2022 played out. ARPU may still be scary.
There's a silver lining here for the bellwether of streaming video stocks. Its guidance was calling for a mere 3% year-over-year uptick in revenue for the third quarter. It came through with a 12% increase. There's still a big difference between guidance of a 3% increase and an 8% decline. So, sure, celebrate Roku hitting the lofty goal of 70 million active accounts. Just be ready when weak ARPU crashes the party when Roku reports its full financial results in a few weeks.
