Roku (ROKU) Tops Q1 EPS by 67c, Q2 Revenue Guidance Beats

Roku (NASDAQ: ROKU) reported Q1 EPS of $0.54, $0.67 better than the analyst estimate of ($0.13). Revenue for the quarter came in at $574.2 million versus the consensus estimate of $490.56 million.

GUIDANCE:

Roku sees Q2 2021 revenue of $615 million, versus the consensus of $549.4 million.

We are pleased with our start to 2021 and believe the broad secular trends combined with the investments we are making will drive long term growth. Different rates of recovery worldwide from COVID-19, combined with persistent supply chain constraints, make it difficult to predict an economic return to normalcy. Thus, our approach to outlook will be similar to last quarter, with formal outlook for Q2 and color on the second half of the year.

Our Q2 outlook is for robust growth with total net revenue of $615 million at the midpoint (up 73% year-over-year) and total gross profit of $300 million at the midpoint (up 104% year-over-year). Strong gross profit growth is expected to outpace operating expense (OPEX) growth, resulting in Q2 Adjusted EBITDA of $65 million at the midpoint.

Given the breadth of Roku’s business model and the complex dynamics of the macro-environment over the last year, we will face a mix of headwinds and tailwinds for the rest of 2021 and into 2022. We have recently begun to lap the initial COVID-19-related shelter-at-home orders which began in mid-March 2020, and these are creating volatile year-over-year comparisons. For the full year, we anticipate more robust revenue growth rates in the first half of 2021 because we face tougher comps in the second half.

We expect the platform business to have an easy year-over-year comp in Q2 2021, and then progressively more difficult comps as the year progresses. This reflects the pullback in TV advertising spend in Q2 2020, triggered by the initial uncertainty surrounding COVID-19, and the subsequent shift of ad budgets in Q3 2020 to digital, and in particular to Roku. We also benefitted from the launch of multiple premium DTC services in the second half of 2020.

The player business is expected to face year-over-year comp headwinds in Q2, and especially in Q3, before returning to a more normalized comp in Q4. In addition, we expect supply chain constraints to persist for the rest of the year, and costs in components and logistics to correspondingly increase as the year progresses. We expect this will result in slightly negative Player margins for Q2 and the likelihood of increasing negative Player margins in the second half of 2021.  

The especially strong consumer interest in streaming during widespread stay-at-home orders in the U.S. in the spring and summer of 2020 produced a spike in streaming hours per account in Q2 2020, and also resulted in elevated growth for Roku’s active account base for much of the year. For the remainder of the year, we expect the year-over-year growth rates of both metrics to be lower than those in 2020. However, we expect net adds of both active accounts and streaming hours to be above pre-COVID-19 levels. Furthermore, we anticipate continued strong engagement as we expect streaming hours per account to be higher in 2021 than in 2020.

Given the significant long-term opportunity ahead of us, we are investing aggressively. This increase in OPEX will begin to lap the actions we undertook to slow OPEX spending in 2020 to manage against pandemic-related uncertainties. As a result, combined with our recent acquisitions, our year-over-year OPEX growth rate is anticipated to increase significantly as 2021 progresses. Therefore, Adjusted EBITDA is expected to be higher in the first half than in the second half.

For earnings history and earnings-related data on Roku (ROKU) click here.

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