This is going to be a huge week for Roku (ROKU -10.29%) investors. The company behind North America's most popular operating system for streaming TVs reports financial results for the third quarter on Wednesday afternoon, and the stock will move one way or another on the news.
However, you can't get to the end of trading on Nov. 1 without getting through Halloween first. Let's take a look inside Roku's bag.
Tricks
Shares of Roku may be trading 38% higher in 2023, but beating the market is a slim trophy for investors who know how high the shares were at one point. Roku stock had more than doubled this year until its recent pullback. The shares also approached $500 at their 2021 peak.
Roku's business has languished as an ad-supported model. Average revenue per user has been slipping after years of growth, as platform revenue has failed to keep pace with gains in users and usage. Roku's profits have turned to losses. It has delivered deficits for the last six quarters. There are more than two dozen analysts putting out estimates on Roku, and all of them expect a seventh consecutive loss in this week's report.
Roku has invested in content and expanded its product line, but those investments are weighing on near-term performance. Wall Street pros don't see a return to profitability until 2027. There's also the matter of the Screen Actors Guild-American Federation of Television and Radio Artists strike that continues even after writers came to terms with Hollywood studios. Several months of halted productions will eventually create a void of fresh content, something that could eat into the consumption of streaming video content next year as well as how much advertisers are willing to pay to reach an audience.
Image source: Getty Images.
Treats
Let's turn to the good candy. Roku continues to command market share leadership through North America. It also has widened its share of new TVs sold with its operating system as the default smart TV setting. The audience keeps flocking to the platform. The 73.5 million active accounts it was serving at the end of June is a 16% increase over the past year. Engagement is holding up even better, surging 21% over the past year. Fears that folks would stream less TV at home after the height of pandemic lockdowns have proven unwarranted.
Revenue is also starting to accelerate. Roku's summertime guidance for the third quarter called for 12% top-line growth at the midpoint. If the year-over-year gain can top 11% it would be the third consecutive quarter of accelerating revenue gains.
Roku has also been ushering in cost controls this year. It won't be enough to return Roku to profitability this week, but losses have been narrower than expected in three of its last four reports. With Roku getting squeezed on both ends of the income statement, improvement on either end should be viewed as a victory given its depressed share price.
The world of digital streaming service stocks has been problematic so far, but it doesn't have to stay that way. With the stock more than 40% below the 52-week high it hit a little more than two months ago, just the absence of horrific news could come as a relief to investors. It won't take much to impress the market, but Roku will still need to bring more treats than tricks this week to get back on track.
