We are in the thick of earnings season, and Roku (ROKU -10.29%) is one of the hundreds of widely followed companies delivering quarterly updates this week. The company behind North America's leading TV streaming operating system will report its fourth-quarter results after Thursday's market close. A lot will be riding on its performance.
Roku shares have soared 60% since the company delivered blowout third-quarter results three months ago. All of those gains -- and then some -- came in November with the stock's 75% pop that month. Roku stock would go on to inch lower in December and again in January, but the upticks have returned this month ahead of a critical financial update.
California streaming
A lot has been going Roku's way over the past year, explaining why the shares more than doubled in 2023. There were 75.8 million active accounts on Roku's platform by the end of September, a 16% increase over the past year. It has more than double the U.S. market share of its closest competitor.
Roku is still posting chunky losses that continue to widen, but its performance is improving on nearly every other front. Revenue growth has accelerated for three consecutive quarters. Average revenue per user (ARPU) -- a trailing-12-month metric -- turned positive sequentially in the third quarter after a year of declines. Roku customers are spending 22% more time on the platform than they were a year ago, outpacing the 16% increase in active users. Put another way, engagement is rocking.
Momentum is strong. Can it keep the positive trends and the stock's ascent going? Everything it says on Thursday afternoon will have weight.
Image source: Getty Images.
Back to the future
Roku's outlook in early November was mixed. Its guidance calls for $955 million in revenue for the holiday quarter, a 10% increase over the $867 million it delivered a year earlier. This is half of the 20% year-over-year top-line increase it posted in the third quarter, but Roku has historically been conservative with its guidance. It will likely end its streak of accelerating revenue growth, but that's not the end of Roku's world. Analysts are modeling $966 million in revenue, an 11% increase.
Investors are hoping for improvement as Roku works its way down the income statement, and it seems as if they are going to get it. Roku's guidance calls for a gross profit of $405 million, 11% higher than where it landed a year ago. The fourth quarter is atypical at Roku, as device revenue that usually comes at a negative gross margin is high with holiday gifting and promotional offers.
The leading streaming service stock predicts an $85 million deficit in Thursday's report, but this is a lot less red ink than the nearly $250 million loss it recorded in the fourth quarter of 2022. Roku also sees adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $10 million, reversing the negative $95 million it posted a year earlier. Analysts are expecting a loss of $0.55 a share for the fourth quarter, less than a third of the deficit it posted in the prior year.
Expectations are high given the stock's 135% surge since the start of last year. It doesn't seem as if folks are streaming less now than they were three months ago, and the market for connected TV advertising continues to firm up as macroeconomic concerns start fading to black. A healthy quarter -- and Roku initiating upbeat guidance for 2024 -- can keep the rally going.
