Categories: Media Moves

Coverage: Roku falls 12% after earnings beat

Shares of Roku plunged as much as 12 percent in extended trading Wednesday despite beating on both the top and bottom lines in its third-quarter earnings.

Sara Salinas of CNBC.com had the news:

Roku raised full-year revenue guidance to a range of $722 million to $732 million, up from a previous range of $710 million to $730 million. That new guidance comes in just above Wall Street estimates of $722.8 million, according to Refinitiv estimates.

The company made its name selling over-the-top streaming devices and striking up partnerships with content companies like Netflix and Hulu. Roku has been trying to move beyond hardware though, introducing a curated Roku channel of free movies and TV for device owners.

Roku said in its earning report it’s “thrilled with the results,” but it’s not immediately clear the strategy is paying off as quickly as hoped.

Revenue from Roku players handily beat Wall Street estimates, totaling $73.3 million compared with $67 million forecast by StreetAccount and FactSet. Revenue from the company’s platform segment, though, came in below analyst projects. Roku posted $100.1 million for the division, compared with $103.2 million forecast by StreetAccount and FactSet.

Natalie Jarvey of The Hollywood Reporter reported that the company is still benefitting from cord cutting:

Roku started as a business devoted to selling connected devices for televisions that allows them to stream programming from online providers like Netflix and Amazon Prime. Over the years, the ecosystem of consumers with Roku TVs grew to a place where the company could begin selling advertising to reach people who regularly use Roku devices. As a result, its business has shifted from one that relied on device sales to one that is increasingly supported by advertising revenue. It is likely that the declining growth of its device business is what has some investors concerned, even if it comes as platform revenue grew 74 percent during the period.

“We believe that all TV will be streamed and as a result, all TV advertising will eventually be streamed,” CEO Anthony Wood wrote in his shareholder letter. “We believe ads on the Roku platform simply work better than ads on linear TV.”

Wood started his call with investors on Wednesday by noting, “Cord-cutting continues to alter the TV landscape.” The company not only benefits from people buying its devices to watch apps like Netflix, it has also introduced its own ad-supported app, the Roku Channel, where people can watch free movies and TV shows from Roku partners.

Wood also explained on the call that Roku continues to see demand for sub-$50 streaming devices and that the company’s advertising business has benefited from buys from two-thirds of Ad Age‘s list of the top 200 advertisers.

Patrick Seitz of Investor’s Business Daily reported the company saw a 43% increase in active accounts:

Roku executives cited a continued strong advertising business and better-than-expected demand for streaming players for its third-quarter beat.

“We are just starting to witness the massive transition of TV viewing and TV advertising to streaming,” Roku Chief Executive Anthony Wood and Chief Financial Officer Steve Louden said in a letter to shareholders.

They added, “Roku is leading the way on the technology front with an operating system that is purpose-built for TV — vs. more heavyweight mobile operating systems — and innovative services like the Roku Channel.”

Roku ended the third quarter with 23.8 million active accounts, up 43% year over year. That’s up 1.8 million from the second quarter. Average revenue per user increased 37% year over year to a record $17.34.

Chris Roush

Chris Roush was the dean of the School of Communications at Quinnipiac University in Hamden, Connecticut. He was previously Walter E. Hussman Sr. Distinguished Professor in business journalism at UNC-Chapel Hill. He is a former business journalist for Bloomberg News, Businessweek, The Atlanta Journal-Constitution, The Tampa Tribune and the Sarasota Herald-Tribune. He is the author of the leading business reporting textbook "Show me the Money: Writing Business and Economics Stories for Mass Communication" and "Thinking Things Over," a biography of former Wall Street Journal editor Vermont Royster.

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