Shares of connected-TV platform company Roku (ROKU +3.50%) skyrocketed on Thursday after the company reported financial results for the third quarter of 2023. Roku saw a recovery in video advertisements and its revenue growth rate consequently reaccelerated. And that's why Roku stock was up 23% as of 10 a.m. ET.
Roku's upbeat Q3 financial results
Prior to today's jump, Roku stock was trading near five-year lows because its revenue growth had slowed and its expenses had soared. But in Q3, the company showed promise on the top line. Revenue was up 20% year over year to $912 million, thanks to growth in active accounts and streaming hours.
Importantly, Roku's 20% growth was much better than its 11% growth rate in the previous quarter. And it was better than its 12% growth in the same quarter of 2022.
NASDAQ: ROKU
Key Data Points
In his letter to shareholders, Roku founder and CEO Anthony Wood said, "We had a solid rebound in video ads in Q3 and we expect the [year-over-year] growth rate of video ads in Q4 to be similar." This rebound is what the market is celebrating today. However, there are some things for shareholders to be aware of.
Watch Roku's still-rising expenses
In Q3, Roku's fastest-growing source of revenue was its device category. But it sells its streaming devices at a loss, so this growth actually hurts the bottom line. Moreover, operating expenses increased across the board, leading to an operating loss of $350 million -- more than double its operating loss in the third quarter of 2022.
Roku had sales and marketing expenses of over $300 million in Q3 alone. Therefore, it's good that the growth rate has picked back up, considering how much it's spending on growth. And to be fair, the company did generate positive Q3 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and it expects positive adjusted EBITDA throughout 2024.
However, shareholders will want to watch Roku's expenses. At some point, it will be important for the company to demonstrate sustained operating leverage if it's going to be a long-term winner.
