Earnings season is in full swing, and that means fresh updates on numerous companies that might be in your portfolio. Roku (ROKU -10.29%) recently provided its second-quarter financials, and the market is reacting very positively, as shares were up over 20% the day following the news (as of the morning of July 28).
If you've been shying away from this popular streaming stock due to persistent macro headwinds, then it might finally be time to pick up the remote and press "play." In fact, it might be a good idea to buy Roku hand over fist right now. Let's take a closer look.
Looking at the latest numbers
Revenue increased 11% year over year in the second quarter to a total of $847 million. That was not only driven by an 11% jump in Platform revenue, which includes advertising and subscriptions, but also by a 9% rise in Devices revenue, where Roku's hardware sales are.
The business now counts 73.5 million active accounts versus 71.6 million just three months ago. And 25.1 billion hours of content were streamed on the Roku platform in the latest quarter, up 21% compared to the second quarter of 2022.
Those two key metrics demonstrate that Roku is growing its user base at the same time as it's increasing engagement, but monetization is somewhat challenged. Average revenue per user (ARPU), a measure of the trailing-12-month revenue from each active account, showed a decrease of 7% year over year. ARPU has been trending downward since the third quarter of last year.
This shouldn't necessarily be too surprising, given that the digital ad market had a difficult year in 2022. Higher interest rates caused widespread fears that the Federal Reserve was going to tip the economy into a recession, so marketing executives naturally pulled back their spending.
But ARPU was flat on a sequential basis, potentially indicating that things might start to take a positive turn in the next few quarters.
Management said that ad spending remains under pressure from technology and media and entertainment companies, but it's strong for consumer packaged goods and health and wellness. Although economic uncertainty remains high, the U.S. economy has shown its resilience. And this could lead to a gradual increase in marketing spending, which could benefit Roku.
Shareholders were probably happy to see that Roku's operating loss of $126 million was the lowest reported since the second quarter of last year. And management reiterated its goal of achieving positive adjusted earnings before interest, taxes, depreciation, and amortization for the full year of 2024, with continued improvements after that.
Thinking longer term
This was a strong quarterly showing for Roku, as evidenced by the market's reaction. But investors should also understand that the business is in a good position generally to benefit from the overall growth of streaming entertainment.
On the quarterly earnings call, Charlie Collier, president of media at Roku, said: "Roku is not in the streaming wars. The streaming wars are being played out on our platform."
While large and well-funded content companies, like Netflix and Walt Disney, spend tens of billions in cash every year to create new shows and movies, Roku continues to be the service-agnostic platform that gives viewers access to all their favorite content in one place. This means that as more households cut the cord (a trend that has become more noticeable over the past decade), Roku has a powerful secular tailwind.
Shares are up 109% in 2023, but they're still below their all-time high from 2021, currently trading at a historically below average price-to-sales (P/S) ratio of 3.8. That suggests it's a good time to consider adding Roku's stock to your portfolio.
