Key Points
- Roku shares popped 20% on its Q4 2022 earnings report.
- Roku continues to lose money but raised its forward guidance with a focus on operating expense control.
- Roku has $1 billion in upfront advertising commitments.
- The Company sees digital advertising trends improving across many verticals, including restaurants, travel, consumer packaged goods, and health and wellness.
- Roku added 4.6 million accounts for 70 million users in 2022, up 16%.
- Q4 2022 streaming hours rose 23% to 23.9 billion hours.
- 5 stocks we like better than Roku
Streaming video platform Roku NASDAQ: ROKU stock has recovered 76.4% in 2023. Shares are still down (-55%) YoY, but indications appear that the worst may be behind them. The Company went from substantial profits to massive losses in 2022. The recent Q4 2022 earnings report suggests sluggish digital advertising sales have bottomed out. The Company could still grow its active user base by 16% in 2022, amassing 70 million users on the Roku platform.
The strategy has been to grow its users as much as possible and monetize them. Roku's legacy hardware sales continue to fall, but the sale of smart TVs embedded with the Roku operating system (OS) drives growth and new users. The Roku Channel is an ad-supported streaming service that continues to grow its viewership. Roku has over $1 billion in adverting backlog heading into 2023.
Secular Tailwinds
The Company will continue to benefit from two fundamental tailwinds cord cutting and the migration to streaming video from traditional TV. Roku faces tough competition in the digital ad space with less targeting efficiency as Amazon.com Inc. NASDAQ: AMZN Fire TV, Apple Inc. NASDAQ: AAPL Apple TV, and Alphabet Inc. NASDAQ: GOOGL Google TV.
Its Roku Channel also faces competition from recently added ad-supported tiers from Netflix Inc. NASDAQ: NFLX and The Walt Disney Company NYSE: DIS Disney+ streaming service. However, Roku's simple OS and the unintrusive network-neutral platform continue to win new users commanding 40% of the market share in the streaming platform OS segment.
Market Leadership
The Roku OS is now on half of all U.S. households with broadband. Roku is the #1 selling smart TV OS in the U.S., Canada, and Mexico. The Roku Channel reached 100 million U.S. households in Q4 2022, and streaming hours rose 85%.
Strong Top Line Beat
On Feb. 15, 2022, Roku reported its Q4 2022 results for the quarter ending December 2022. The Company reported an earnings-per-share (EPS) loss of $1.70 versus consensus analyst estimates for a loss of $1.71, a $0.01 beat. Revenues grew 0.2% YoY to $867.06 million, beating analyst estimates of $803.32 million.
The Company added 4.6 million active accounts in Q4 and 9.9 million active accounts for 2022. Total active accounts grew to 70 million users in 2022. The average revenue per user (ARPU) rose 2% to $41.68 on a trailing twelve-month basis. Streaming hours rose to 87.4 billion. Platform revenues grew by 20% in 2022.
Brighter Days Ahead
Roku expects Q1 2023 revenues of around $700 million versus $688.2 million consensus analyst estimates. The Company expects total gross profits of around $300 million and an adjusted EBITDA loss of $100 million. Ad spending improves in Q1 2023 for verticals, including travel, restaurants, consumer packaged goods, and health and wellness. However, verticals in financial services and monetization and evaluation (M&E) remain pressured.
The Company expects weakness to continue to contract Platform margins near-term, notably as advertisers shift to video advertising. Roku has been extra focused on trimming opex growth and expects it to fall from 40% in Q1 2023 to single digits in Q4 2023.
Atlantic Equities Upgrade
On Feb. 16, 2023, Atlantic Equities upgraded shares of Roku to Neutral from Underweight with a $76 price target, up from $40. Analyst Hamilton Faber cited investor confidence returning. He sees seasonality in Q1 2022, but the long-term guidance suggests a runway for growth. Roku expects operating expense (opex) growth to fall from 40% in Q1 2023 to single digits by year’s end and positive EBITDA as 2024 rolls around.
Bank of America Upgrade
On Feb. 17, 2023, Bank of America analyst Ruplu Bhattacharya upgraded shares of Roku to a Buy from Underperform and raised his price target significantly to $85, up from $45 per share. He cited the ad spending bottoming out in many verticals, as pointed out by Roku, as a critical factor.
He is also encouraged by its growing partnerships improving access to potential advertisers, and the continued growth in viewing times and active users. Roku's growing market share in smart TVs, shoppable ads, and opex cost-cutting measures were also factors for his double upgrade to Buy.
Streaming video platform Roku NASDAQ: ROKU stock has recovered 76.4% in 2023. Shares are still down (-55%) YoY, but indications appear that the worst may be behind them. The Company went from substantial profits to massive losses in 2022. The recent Q4 2022 earnings report suggests sluggish digital advertising sales have bottomed out. The Company could still grow its active user base by 16% in 2022, amassing 70 million users on the Roku platform.
The strategy has been to grow its users as much as possible and monetize them. Roku's legacy hardware sales continue to fall, but the sale of smart TVs embedded with the Roku operating system (OS) drives growth and new users. The Roku Channel is an ad-supported streaming service that continues to grow its viewership. Roku has over $1 billion in adverting backlog heading into 2023.
Secular Tailwinds
The Company will continue to benefit from two fundamental tailwinds cord cutting and the migration to streaming video from traditional TV. Roku faces tough competition in the digital ad space with less targeting efficiency as Amazon.com Inc. NASDAQ: AMZN Fire TV, Apple Inc. NASDAQ: AAPL Apple TV, and Alphabet Inc. NASDAQ: GOOGL Google TV. Its Roku Channel also faces competition from recently added ad-supported tiers from Netflix Inc. NASDAQ: NFLX and The Walt Disney Company NYSE: DIS Disney+ streaming service.
However, Roku's simple OS and the unintrusive network-neutral platform continue to win new users commanding 40% of the market share in the streaming platform OS segment.
Market Leadership
The Roku OS is now on half of all U.S. households with broadband. Roku is the #1 selling smart TV OS in the U.S., Canada, and Mexico. The Roku Channel reached 100 million U.S. households in Q4 2022, and streaming hours rose 85%.
Strong Top Line Beat
On Feb. 15, 2022, Roku reported its Q4 2022 results for the quarter ending December 2022. The Company reported an earnings-per-share (EPS) loss of $1.70 versus consensus analyst estimates for a loss of $1.71, a $0.01 beat. Revenues grew 0.2% YoY to $867.06 million, beating analyst estimates of $803.32 million.
The Company added 4.6 million active accounts in Q4 and 9.9 million active accounts for 2022. Total active accounts grew to 70 million users in 2022. The average revenue per user (ARPU) rose 2% to $41.68 on a trailing twelve-month basis. Streaming hours rose to 87.4 billion. Platform revenues grew by 20% in 2022.
Brighter Days Ahead
Roku expects Q1 2023 revenues of around $700 million versus $688.2 million consensus analyst estimates. The Company expects total gross profits of around $300 million and an adjusted EBITDA loss of $100 million. Ad spending improves in Q1 2023 for verticals, including travel, restaurants, consumer packaged goods, and health and wellness. However, verticals in financial services and monetization and evaluation (M&E) remain pressured.
The Company expects weakness to continue to contract Platform margins near-term, notably as advertisers shift to video advertising. Roku has been extra focused on trimming opex growth and expects it to fall from 40% in Q1 2023 to single digits in Q4 2023.
Atlantic Equities Upgrade
On Feb. 16, 2023, Atlantic Equities upgraded shares of Roku to Neutral from Underweight with a $76 price target, up from $40. Analyst Hamilton Faber cited investor confidence returning. He sees seasonality in Q1 2022, but the long-term guidance suggests a runway for growth. Roku expects operating expense (opex) growth to fall from 40% in Q1 2023 to single digits by year’s end and positive EBITDA as 2024 rolls around.
Bank of America Upgrade
On Feb. 17, 2023, Bank of America analyst Ruplu Bhattacharya upgraded shares of Roku to a Buy from Underperform and raised his price target significantly to $85, up from $45 per share. He cited the ad spending bottoming out in many verticals, as pointed out by Roku, as a critical factor.
He is also encouraged by its growing partnerships improving access to potential advertisers, and the continued growth in viewing times and active users. Roku's growing market share in smart TVs, shoppable ads, and opex cost-cutting measures were also factors for his double upgrade to Buy.
Weekly Cup and Waiting on the Handle
The ROKU weekly candlestick chart formed a lip line at $73.78 in September 2022 before it fell to a low of $38.26 in December 2022. Shares staged a rally triggering the weekly market structure low (MSL) breakout through $44.46 as the weekly stochastic bounced up through the 20-band.
Shares completed a rounded bottom as ROKU climbed up to retest the lip line at $73.78 on its earnings release. ROKU completed the cup portion of a potential cup and handle. If the lip line can't breakout, a pullback will form the handle preceding a breakout back up through the lip line to form the cup and handle pattern.
The weekly 20-period exponential moving average (MA) support sits at $58.38, and the 50-period MA resistance sits at $73.94. Pullback support levels are at $64.27, $57.97, $51.13, and $44.46 weekly MSL trigger.
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