We’re in the home stretch for earnings season, and a strong report can send a stock higher. Shares of Roku (NASDAQ: ROKU) initially moved sharply skyward after the company posted encouraging financial results on Thursday afternoon following the market’s closing bell.
Roku was already turning heads before this week’s blowout fourth-quarter performance. The shares had nearly doubled since bottoming out this past summer. The strong results are kicking things up a notch higher, so let’s take a closer look at some of the reasons the Roku story is getting even better.
The top line is always a good place to start. Net revenue for the final three months of 2024 topped $1.2 billion, just ahead of both the $1.15 billion analysts were targeting and the $1.14 billion Roku was modeling back in October. The record revenue is a 22% increase, the strongest year-over-year percentage jump for Roku since early 2022. Platform revenue topped $1 billion for the first time.
The bottom line brought an even bigger beat. Its net loss narrowed to $0.24 a share, a lot less red ink than the $0.43 Wall Street pros were expecting. Roku came through with large bottom-line beats in every quarter in 2024. Deficits aren’t fun, but Roku keeps clawing its way back to return to profitability.
There are now 89.8 million streaming households on the Roku platform, a net gain of 12%, or 9.8 million homes, from where it was at the start of last year. An important milestone was reached, as Roku now has a presence in more than half of the country’s broadband households. Roku competes against some of the wealthiest companies in the planet, and it’s gobbling market share at their expense.
This isn’t a passive audience that Roku is reaching. These homes spent 127.1 billion hours streaming through Roku during the fourth quarter, an 18% jump over the prior year’s holiday quarter. Streaming hours keep growing faster than the number of households on the platform, and that’s a good thing. It means the average viewer is spending more time cradling the Roku remote.
When the streaming services pioneer launched The Roku Channel, it was easy to wonder if the platform operator was flying too close to the sun. One thing that sets Roku apart from other streaming hubs is its agnosticism. It plays nice with most apps, giving viewers thousands of options without being perceived as trying to steer folks to its own premium offerings.
The Roku Channel is a free ad-supported channel. Roku has made shrewd grabs for content that it can serve up to generate ad revenue while also making its platform more engaging. And that approach is working, as The Roku Channel became one of the five most popular channels on its hubs earlier in 2024. It’s still a speedster. Streaming hours have increased 82% over the past year, and it now reaches households with roughly 145 million people.
The report wasn’t perfect. Roku’s net and operating loss widened sequentially in the fourth quarter. Expenses are inching higher at a faster pace than its improving business. However, Roku’s guidance and a new target for next year should woo investors who had sworn off Roku for its lack of profitability.
Roku’s guidance call for a net loss of $40 million in the current quarter. This would be another slight sequential deterioration from the nearly $36 million net loss it just clocked in with for the fourth quarter. But zoom out. Roku also sees a net loss of $40 million for all of 2025. In other words, Roku expects to break even through the final nine months of this year. It’s also now telling investors it should achieve positive operating income for all of 2026.
As a free operating system to get TV homes connected, Roku’s business is driven primarily by how well it can monetize its audience. Even over the seasonally potent holiday quarter in which Roku sticks and other hardware sell briskly, devices accounted for just 14% of the revenue mix.
Roku’s platform revenue is responsible for the lion’s share of the business, and that means things like advertising revenue and collecting fees when folks sign up for premium services through its hub. Roku was going through a crisis until just recently, when average revenue per user or ARPU was stagnant if not declining despite the platform’s growing engagement levels.
Roku generated $41.49 in ARPU during the fourth quarter, a figure that adds up the average revenue per user over the trailing 12 months. That’s a 4% increase from where Roku was a year ago, rising sequentially for four straight quarterly reports. A 4% increase may not seem like a lot, but it’s the first time in two years that the figure was materially positive. Roku is on the right track, and there’s no denying now that momentum is firmly on its side.
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Rick Munarriz has positions in Roku. The Motley Fool has positions in and recommends Roku. The Motley Fool has a disclosure policy.
5 Reasons Roku Is Moving Higher on Friday was originally published by The Motley Fool
Source: finance.yahoo.com