There are two sides to the Roku (ROKU -10.29%) stock chart. On the one hand, shares of the streaming on TV pioneer have nearly doubled this year. The longer chart shows that Roku is still 85% below its peak set two summers ago. There's feast. There's famine. There's nothing in the middle.
Thankfully there isn't much divergence in sizing up Roku's second-quarter results. It was a blowout performance. For the third time in as many chances at the plate in 2023, Roku has exceeded its earlier guidance. Analysts weren't even close this time.
The naysayers still continue to get louder. Short interest is approaching 9% of Roku's outstanding share count, nearing a three-year high for bearish wagers placed against North America's leading operating system for smart TVs. Roku is surprising everyone, yet somehow failing to impress the masses at the same time. It's time for a fresh look at an ascending Roku.
Turning negatives into positives
Let's go back to mid-February when Roku delivered its fourth-quarter results. Revenue rose a mere 0.2%, but Roku's own forecast was calling for an 8% year-over-year decline on the top line. Jump to late April and Roku's first-quarter performance was a 1% uptick in revenue. It was modeling a 5% slide for the quarter.
Heading into this week's release, Roku was finally bracing investors for positive year-over-year growth. The $770 million it was targeting on the top line would be just a 0.7% advance. The record $847.2 million it finally posted in net revenue after Thursday's market close is the widest of the three beats, an 11% jump from where it was for last year's second quarter.
It's not just a surprisingly early return to double-digit revenue growth that's exciting. Losses continue at Roku, but the red ink continues to run lighter. The $378.3 million it's posting in gross profit for the quarter is within 0.3% of its peak set in late 2021. After seven consecutive quarters of sequential deterioration of net income, Roku has now rattled off back-to-back reports of dramatic improvement.
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The platform itself has never been more popular than it is right now. The 73.5 million active accounts is a year-over-year increase of 16% over the past year. Engagement is also strong, judging by the 21% surge in hours streamed on the platform. Average revenue per user remains sluggish -- flat sequentially and down over the past year -- but advertising revenue is finally showing signs of stabilizing.
Roku's guidance is mixed at first glance. It is modeling a 7% increase in net revenue to $815 million for the third quarter. Its gross profit, net loss, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) targets also translate into sequential slips. However, Roku has easily trounced its conservative outlooks over the fence the last few times that it has stepped into the batter's box. You have to like its chances this time, too.
As a leader among streaming services, Roku is making the most of its scalable opportunity. The Roku Channel is accounting for 1.1% of the country's TV viewing time. It may not seem like a lot, but it's already rivaling some premium channels including Peacock and the recently rebranded Max. Roku is still early in its turnaround. A lot can go wrong along the way. Betting against Roku at this point still seems to be an ill-advised wager.
