The streaming specialist, which went public in the fall of 2017, posted stronger-than-expected revenue on Wednesday as well as sharp increases in streaming time and active accounts. Although it was once known for the hockey puck-sized streaming boxes that enabled streaming across thousands of apps, the company has diversified into advertising, licensing and distribution. The Roku Channel, which launched in late 2017, is now generating Amazon- and Apple-style fees from dozens of subscription apps, and is among the top five destinations on the entire platform. Deals to integrate the Roku interface into TVs from several manufacturers have now made Roku the No. 1 smart-TV brand, ahead of Samsung, the company said. It accounts for one out of every three TVs sold.
Revenue of $206.7 million in the period came in well ahead of analysts’ expectations and was 51% better than the revenue in the same quarter a year earlier. The number of streaming hours enabled by Roku devices soared 74% to 8.9 billion, while the company also reported a 40% surge in active accounts.
The market reaction has something to do with timing. The company has matured in the public markets at the very moment that Disney, WarnerMedia, NBCUniversal, Apple and many others have been preparing major digital initiatives. “In recent weeks, some of the world’s largest media publishers have announced massive new investments in streaming,” founder and CEO Anthony Wood said during the company’s earnings call with analysts. “New services and customer acquisition campaigns from Disney, Apple, and others will help fuel Roku’s growth for years to come.”
Several analysts raised their price targets in the wake of the earnings report.
One of them, Michael Morris at Guggenheim, commended Roku in a report to clients for continuing to “capitalize on secular streaming and cord cutting trends as it strengthens market share, user engagement, monetization and active account additions through investments in its platform and content offering.” Macquarie’s Tim Nollen also praised Roku for its ability to stimulate “advertiser and SVOD demand for Roku’s hard to reach, scaled audience.”
Both analysts, however, maintain a neutral rating on Roku shares, which have been fairly volatile despite overall gains in recent months.
One question looming over the company — though it has done a good job of keeping it at bay through plain old execution — is about its fate in a consolidating world. As an independent player with a market cap of about $9.4 billion, what sort of future is it going to be able to secure for itself given the deeper pockets of the tech giants and the ambitions of traditional media companies? And who would make sense as an ultimate acquirer of Roku if that is its exit strategy?
One thing appears certain: The unraveling of the traditional bundle plays in Roku’s favor. Scott Rosenberg, GM of Roku’s platform business, noted during the conference call that Roku’s rise has coincided with declines in live, linear TV viewing, which will be a major concern on advertisers’ minds at next week’s broadcast upfronts.
Ratings for adults 18 to 34, Rosenberg told analysts, are collectively down more than 50% since 2010, “yet rates are going up. Promises made around the reduction of ad loads, new ad capabilities, new targeting capabilities just aren’t happening in linear TV like the buying community would like to see. So advertisers are getting very direct about their intent to move money out of linear in OTT. Agencies all across town are hosting OTT education days as they go into the upfronts. We’re a key participant and leader in that process.”