Roku (ROKU) Falls Sharply on Significant Slowdown in Streaming Views, Analysts Divided

Shares of Roku (NASDAQ: ROKU) are down nearly 8% in pre-open Thursday after the company reported a significant slowdown in streaming TV.

The company delivered earnings per share (EPS) of $0.52 per share on revenue of $645 million to top EPS of $0.13 on revenue of $618 million expected from market analysts.

“Roku delivered a strong second quarter, with record revenue growth that was driven by exceptional performance in platform monetization. Audiences, content, and advertisers continue their shift to TV streaming around the globe, and Roku is a key enabler of this long-term secular trend. We more than doubled monetized video ad impressions year-over-year, and leading media companies are increasingly turning to Roku’s tools to grow their DTC (direct to consumer) services,” the company said in a statement.

However, shares were hit by the fact the company added only 1.5 million new users while the Street was projecting 2.1 million new accounts. Similarly, streaming hours fell by 1 billion hours from Q1 to 17.4 billion in Q2. On a YoY basis, streaming hours are still up 19%. The average revenue per user (ARPR) jumped 13% to $36.46 in Q2, or up 46% YoY.

For this quarter, Roku is projecting to earn an adjusted $65 million on sales of $680 million, based on the midpoint of the guidance. Analysts were expecting a loss of $0.21 per share on sales of $648.6 million.

“Looking ahead, our recent success at the Upfronts demonstrates the accelerating shift of advertisers from traditional TV to TV streaming. We closed commitments with all seven major agency holding companies, doubling dollar commitments year-over-year. We believe that our leading technology, platform scale, and the value we provide content providers, advertisers, and consumers all position us well for long-term growth,” the company added.

Needham analyst Laura Martin urged investors to use the pullback and buy shares of Roku. She left its “Buy” rating and a $550.00 per share price unchanged.

“We are buyers of ROKU on weakness. We believe digital markets are winner-take-most markets and ROKU is the winning AVOD aggregation platform for films and TV series. YouTube is its closest comp because it is the winning AVOD aggregator of user generated content, in our view. We estimate YouTube will generate $35B of revs in 2021 and is worth $500B. Roku is pure play, which is best for investors, and its economics will be similar over time, we believe,” the analyst said in a note.

“Investors seem concerned about weak active account growth in 2Q21. Our view is that COVID-19 pulled forward BY TWO YEARS the installed base of Roku's active users, so not adding new accounts as rapidly this year does not trouble us. The better numbers (to us) are ROKU's 81% rev growth and $122mm of EBITDA in 2Q21, up from a $3mm LOSS in 2Q20,” Martin further added.

Unlike Martin, Morgan Stanley analyst Benjamin Swinburne reiterated an “Underweight” rating and described Q2 results and Q3 guide as “solid.” Still, he lowered the price target to $310.00 per share from $325.00 citing decelerating active accounts. He adds that shares are “priced to perfection.”

“Does Roku have an Active Account and engagement growth problem? Roku the business, does not. Roku the stock, may. Again, similar to what we have seen at Netflix, Discovery Plus (and expect to see at Disney Plus and Starz), a reopening US consumer is watching less TV. Roku's 2Q results and second half outlook reflect that, along with additional challenges to near-term growth,” the analyst said in a client note.

“Specifically, Active Accountnet additions in 2Q21 were 1.5mm, below expectations and down from the COVID lifted 3.2mm in 2Q20 but up against 2Q19's 1.4mm. Even with COVID comps, we are surprised international growth in AA's did not have a larger impact on results this quarter or outlook for the rest of the year. The industry slowdown in streaming is even more clear in Roku's reported streaming hours which saw the first ever (post IPO) QoQ decline. In fact, hours streamed per AA dropped over 9% YoY,” Swinburne added.

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