Over the past couple of decades, there has been a paradigm shift going on in the living room. While cable TV was once the undisputed place for in-home entertainment, advances in technology, changing consumer tastes, and a growing number of choices have pushed cable into a gradual -- yet undeniable -- secular decline. The number of consumers without cable long ago surpassed those who still have pay TV.
One of the factors helping accelerate the irrelevance of cable is streaming video. And no platform is fueling that trend more than Roku (ROKU -10.01%). By providing audiences with a long and growing list of viewing options, the streaming pioneer has become a staple in a growing number of households.
When the company reported its financial results after the market close on Wednesday, Roku surpassed cable in one crucial metric, cementing its place in television history.
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Surpassing cable
In the first quarter, Roku added 1.6 million new active accounts, bringing its total to 71.6 million, up 17% year over year. While that might not seem remarkable at first glance, consider this: Roku now has more viewers than all the cable companies -- combined.
While estimates vary, traditional cable operators, satellite providers, and bundled television services collectively total 70.2 million subscribers, according to Leichtman Research Group, a number that declines with each passing quarter.
In fact, the major pay-TV providers lost 5.9 million subscribers collectively last year, accelerating from a loss of 4.7 million in 2021. Roku's growing number of active accounts suggests the company's streaming platform is capturing the defectors.
Roku has grown in popularity with viewers, which is reflected in the company's financial results. It generated revenue of $741 million, up 1% year over year, resulting in a loss per share of $1.38. To give those numbers context, analysts' consensus estimates were calling for revenue of $708.1 million and a loss per share of $1.47, so the resilience of Roku's business was a pleasant surprise for investors.
The company cited strong engagement for helping fuel its growth, with a record 3.9 streaming hours per active account per day.
This is a notable achievement in the face of macroeconomic headwinds. The vast majority of Roku's revenue comes from the cut it gets from the digital advertising shown across the channels on its platform. And it's well known that businesses tend to decrease marketing spending in times of economic uncertainty.
Expanding its ecosystem
The platform continues to dominate the smart-TV market, which helps fuel the growth of its ecosystem. According to the company's shareholder letter, the Roku operating system (OS) "was ... the #1 selling smart TV OS in the U.S., achieving a record-high 43% of TV unit share ... more than the next three largest TV operating systems combined." That dominance has spread south of the border, too, as the Roku OS was also the No. 1 seller in Mexico.
Early this year, the company announced plans to release a line of TVs designed and made by Roku, and thus far the venture has been wildly successful. The Roku Plus Series 4K QLED TV is a particular standout (emphasis from Roku's shareholder letter): "The fact that the Roku Plus Series 4K QLED TV comes even remotely close to the best TVs for a fraction of the price is remarkable," according to Tom's Guide, which selected the device for its Editor's Choice Award. Yahoo was similarly enthusiastic, saying the "simplicity and rock-solid hardware create a mid-tier TV that's very close to perfect."
A rebound on the horizon?
Looking ahead, Roku expects headwinds to continue during the second quarter. In the shareholder letter, management wrote: "Consumers remain pressured by inflation and recessionary fears, and thus discretionary spend is likely to remain muted. Accordingly, we expect the advertising market in Q2 to look much the same as it did in Q1."
Despite the macro headwinds, Roku is still forecasting modest growth. In the second quarter, the company is guiding for revenue of roughly $770 million, up 1% year over year and edging past analysts' consensus estimates, which are calling for revenue of $766.2 million. Perhaps as important, Roku maintained its longer-term guidance and expects to deliver positive adjusted earnings before interest, taxes, depreciation, and amortization for full year 2024.
To be clear, challenges remain for Roku, particularly as consumer budgets are stretched and the ad market remains tight. But the evidence suggests that when the economy rebounds, as it inevitably will, Roku stock will ride the wave higher, enriching shareholders along the way.
