What happened
Shares of Roku (ROKU +1.96%) stock fell 16% in August, according to data from S&P Global Market Intelligence. The streaming stock had soared after its earnings release in July, and it gave back some of the gains.
So what
Roku is trying to find its groove in the competitive realm of streaming. Sales soared early in the pandemic and the company briefly became profitable, but between growing competition, a saturated market, viewers getting out again, and inflation, it's struggling to keep up its strong performance.
Sales increased 11% year over year in the 2023 second quarter. Both platform revenue, which is mostly ad sales, and device revenue were healthy, with an 11% increase in platform revenue and a 9% increase in device revenue. Device revenue had declined beginning with supply chain issues in 2021 and then inflation, and it's now on its way back up.
NASDAQ: ROKU
Key Data Points
There were many other signs of progress as well. Active accounts continue to grow, up 16% year over year and by 1.9 million sequentially to 73.5 million. Streaming hours increased 21% over last year and were steady from the first quarter.
Not everything was positive. Average revenue per user was down 7% from last year and steady with the first quarter, which was also a year-over-year decline. Management explained that this is a result of increased customers as advertisers don't keep up. Advertisers have been slashing their budgets in the inflationary environment, affecting Roku's operations.
Net loss increased from $100 last year to $126, although it was much better than the past three quarters. Management is guiding for revenue to increase by 7% and for net loss to come in at $155 million.
Although it was a mixed quarter, there are reasons to believe Roku will eventually get back on more solid ground. It's consistently the No. 1 streaming operating system in the U.S., and it's taking the top spot in newer markets. It's benefiting from continued cord-cutting, such as the increase in viewing hours at the same time that traditional TV viewing hours fell 13%. Since its Roku channel is completely free, it provides an alternative to premium streaming channels and even ad-supported tiers that often cost money and that some traditional TV viewers won't spend on.
Now what
Roku stock is still well off its pandemic highs, but it's more than doubled this year. Even at the current price, it's sporting an inexpensive valuation of less than 4 times trailing-12-month sales.
Roku has several competitive advantages in streaming, plus a diversified business of both ads and hardware. It should eventually go on to reward shareholders even more, although it may be choppy along the way.
