Shares of online streaming company Roku (NASDAQ: ROKU) are trading higher in pre-market today following its Q1 results. In the quarter that ended in March, Roku reported revenue of $741 million and an adjusted loss of $1.38 per share or $193 million. In the year-ago quarter, Roku’s sales and adjusted losses per share stood at $733.69 million and $0.19, respectively.

Comparatively, Wall Street forecast Roku to report revenue of $708.5 million and an adjusted loss of $1.37 per share. So, Roku beat revenue estimates and reported losses almost in line with consensus forecasts, driving the stock higher.

But let’s see what impacted Roku’s financials in Q1 of 2023.

 

Roku stock is up 40% in 2023

In the first four months of 2023, shares of Roku are up 40% due to the rally surrounding beaten-down tech stocks. However, ROKU stock is still down 88% from all-time highs valuing the company at a market cap of $7.9 billion.

It ended Q1 with 71.6 million active accounts globally, adding 1.6 million accounts on a sequential basis. In fact, its active accounts in the U.S. is fast approaching 50% of all broadband households, indicating the unmatched scale of its business model, which in turn leads to higher engagement and monetization opportunities.

Roku’s operating system was once again the best-selling smart TV OS in the U.S., accounting for a share of 43%, which is more than the next three players combined. With over 20 licensed TV partners worldwide, Roku TV enables the company to expand its user base consistently.

Global users streamed 25.1 billion hours in Q1, indicating an average of 3.9 hours of streaming per active account each day. As the cord-cutting phenomenon continues in the U.S., where over 50% of households have transitioned away from traditional pay-TV, Roku’s streaming hours were up 20% year over year in Q1.

Roku remains focused on improving user engagement. In a recent survey conducted by Roku, 50% of streamers said they abandoned watching a show or movie as they couldn’t recollect the streaming platform. So, it now has a feature where it aggregates recently viewed content from a dozen streaming services at a centralized location.

Roku’s platform sales were down 1% year over year at $635 million. This segment earns revenue from ad sales, distribution of streaming services, and related promotional capabilities. A difficult macro environment drove ad sales in the U.S. lower by 7.4% in Q1, resulting in a tepid performance.

Roku explained, “We expect macro uncertainties to persist throughout 2023. Consumers remain pressured by inflation and recessionary fears, and thus discretionary spend is likely to remain muted.”

 

What next for Roku stock price and investors?

Roku expects revenue to touch $770 million with a gross profit of $335 million and an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) loss of $75 million in Q2 of 2023. In the year-ago period, Roku reported revenue of $764 million.

Analysts expect Roku’s sales to increase by 4.5% to $3.27 billion in 2023 and by 16.3% to $3.8 billion in 2024. Its loss per share is estimated to narrow from $3.62 in 2022 to $2.63 in 2024.

Roku stock is priced at 2x forward sales, which is very reasonable for a tech stock.

But there are risks associated with investing in loss-making stocks such as Roku. Armed with more than $1.5 billion in cash, Roku will have to move toward profitability within the next two years to avoid shareholder dilution.

ROKU stock is currently priced at a discount of 20% to consensus price target estimates.

Roku (NASDAQ:ROKU)
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