What happened
Shares of media-streaming technology expert Roku (ROKU +6.02%) painted a rosy picture on Friday, inspired by the company's strong second-quarter earnings report. Roku's stock price was up by 20.5% at 10:30 a.m. ET today as investors embraced the robust report.
So what
Three months ago, management set up modest guidance targets for the second quarter. Top-line revenue was expected to stay flattish year over year at roughly $770 million. The bottom line was aimed at a net loss of $175 million, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) pointed to a substantial loss in the neighborhood of $75 million.
The actual report blew all of Roku's guidance targets out of the water. Sales rose 11% year over year to $847 million. Earnings were still negative, but the unadjusted net loss came in at a milder $126 million, and the EBITDA pain stopped at just $18 million.
Management noted that the streaming market "remains largely unchanged" from the first quarter, with slow digital ad sales but solid demand for Roku-powered smart TVs. Some ad-buying markets showed signs of life, but the overall market mood still inspired another round of conservative guidance targets for the next reporting period.
NASDAQ: ROKU
Key Data Points
Now what
Roku has slowed down its operating expense growth in order to mitigate the painful bottom-line results, but the company still acts like a hungry start-up. Despite the challenging revenue trend and the weak state of the digital advertising market in particular, Roku boosted its own sales and marketing spend by 23% year over year.
Roku shares have now doubled in 2023, but it's not too late to build a position in this promising long-term growth stock; the chart is still down 4% in 52 weeks. The price could multiply sevenfold from here and still not quite regain the all-time high from two summers ago.
I keep pounding the table about Roku's tremendous upside and deeply undervalued stock. Earnings will stay negative until the digital ad market gets back on its feet (and possibly a few years beyond that inevitable upswing), as Roku is more interested in growing a dominant global market share than in pocketing profits along the way. Your mileage may vary, but I'm fine with that idea.
This report showed Roku's ability to benefit from a partial recovery in certain portions of the ad-buying market, but it wasn't a ticker-tape parade back to full health. That bit comes later, perhaps in this year's holiday season or in a solidifying 2024 economy. We shall see. Either way, Roku still looks like a great buy, even if you missed Friday's big jump.
