It's showtime for Roku (ROKU -1.39%). The company behind the country's leading streaming video operating system for TVs will step up with its first-quarter results shortly after the market close on Wednesday.
The stock is up 52% since hitting a four-year low in December, but it doesn't mean that expectations are high heading into the telltale report. Analysts see revenue of $707.9 million for the first three months of 2023, a 3.5% decline from where it was a year ago. It would be the first time that Roku delivers a year-over-year decline in revenue in its six years as a publicly traded company.
The bottom line doesn't get any better. Wall Street pros are targeting a quarterly deficit of $1.38 a share, a much larger loss than it delivered a year earlier. It's not a flattering look, but grab the remote. Click away from the pessimism channel. There are some potential silver linings in this week's financial update.
Fundamentals are buffering
The good news is that Roku itself was forecasting even gloomier numbers two months ago. Its own guidance issued in mid-February was calling for $700 million in revenue, a 4.6% year-over-year dip. The same can be said for the net loss of $205 million it was modeling for the quarter, translating into a $1.47 a share deficit based on its most recent quarter's share count. Wall Street views have inched in a more favorable direction in recent weeks.
There are other morsels of encouraging news. Let's start with its previous earnings report. Roku was bracing investors for an 8% drop in revenue for the fourth quarter. It was able to squeeze out a 0.2% increase on the top line instead. If it's able to actually grow its revenue -- by more than 0.2% -- it would break a streak of seven consecutive quarters of sharply decelerating top-line growth.
Roku also posted a narrower loss than it was projecting in the fourth quarter. It has back-to-back quarters of bottom-line beats heading into this week's earnings call.
Image source: Getty Images.
One thing that bulls are missing is the chorus of upbeat analyst notes propping up their price targets on Roku shares ahead of Wednesday's report. Roku isn't likely to see much sequential growth from the 70 million active accounts it had at the beginning of this year. The 1.2 million net additions it posted in the first quarter of last year was the weakest increase of the year given the seasonality of the business. However, if Wall Street felt that the climate for connected TV advertising was improving, you would expect more analysts checking in to predict a strong report. As a free platform, Roku is at the mercy of the digital TV advertising market.
There also doesn't seem to be enough excitement among the analyst community about Roku's admission in a filing last month that it will be prioritizing projects that Roku "believes will have a higher return on investment." This won't materialize overnight, but if that is the case you can expect Roku to return to profitability sooner rather than later.
Roku competes against three of most valuable companies in the country in its niche, but it's still the leading hub among streaming video stocks. It commands nearly double the market share of its closest competitor. Despite the stock's big gains over the last four months there is still room for more upside if it can deliver another blowout quarterly performance. One way or another, Roku is going to be volatile come Thursday morning, and that's just a matter of good programming.
