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Fresh off a carriage renegotiation with Fox Corp., Roku Inc. is about to face another test.
The streaming company is set to post December-quarter results on Thursday afternoon, with a report that will not only show how well Roku ROKU, +3.62% devices and connected TVs sold during the holidays but also provide some early indications of how Roku benefited from recent streaming launches by Walt Disney Co. DIS, -1.11% and Apple Inc. AAPL, -0.60% , both of which debuted services in November.
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Roku shares surged more than 300% in 2019, in part due to enthusiasm around new streaming offerings from some of the larger players in tech and media. When users subscribe to one of these paid offerings through the Roku platform, the company takes a cut of the monthly fee, so bulls argued that Roku could ride the rising tide.
“The significant expansion of streaming options in Q4, including Apple+ and Disney+, drove increased cord-cutting in the quarter, which may have accelerated active account growth on the Roku platform in Q4 in excess of our estimates,” wrote Wedbush’s Michael Pachter, who has a neutral rating and $105 price target on the shares due to concerns about valuation.
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The stock had a more muted start to this year, but it has been subject to a wave of enthusiasm in the immediate lead up to the earnings report. Shares have added about 10% so far this week and are now in positive territory for 2020.
Here’s what to watch for in Roku’s upcoming report.
What to expect
Earnings: Analysts surveyed by FactSet expect that Roku lost 13 cents a share in the fourth quarter, whereas the company posted positive earnings per share of 5 cents in the year-earlier period. According to Estimize, which crowdsources projections from hedge funds, academics and others, the average estimate calls for a 14-cent loss per share.
On an adjusted basis, analysts are calling for a loss of 7 cents a share. Roku recorded 5 cents in adjusted EPS a year prior.
Revenue: The FactSet consensus models $392 million in fourth-quarter revenue for Roku, up from $276 million a year earlier. The Estimize consensus calls for $396 million.
Stock movement: Roku’s stock is priced for a big move, but not as extreme as in the past. The options market is looking for a 15.6% swing in Roku shares in the day after the report, which would mark the second-smallest post-earnings move for the stock on a percentage basis. The average of the last six post-earnings swings is 22.3%.
What else to watch for
Wedbush’s Pachter has a number of questions heading into the report, including about Roku’s revenue-share arrangement with some of the big new streaming players. The terms “are not yet clear and may push [average revenue per user] lower than we estimated for the quarter and going forward,” he wrote.
Pachter projects average revenue per user of $23.44 in the quarter, along with 36 million active accounts.
He also will be looking for more information about spending trends at Roku, writing that the company could see elevated spending as it “competes for licensing contracts” and continues its international push.
“In 2020, Roku faces various hurdles that should limit the pace of international expansion, including regionally differentiated technology, content licensing, and retail relationships,” he wrote. “Achieving profitability in Roku’s international markets will take time, in our view, which will likely rein in Roku’s lofty valuation once this becomes clear to investors.”
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D.A. Davidson’s Tom Forte is modeling $388.4 million in quarterly revenue for Roku, below the FactSet consensus, though he projects “strong year-over-year growth” in other important metrics. Forte’s model calls for $22.44 in average revenue per user, 36.6 million active accounts, and 60% growth in streaming hours, which would bring the total up to 11.7 billion.
He flagged that Roku recently implemented a feature that asks users if they’re still watching a program, which “should alter total streaming hours going forward” but not impact financial performance.
Forte will also be looking for commentary around the impact of the new streaming launches as well as the company’s progress in finding a new chief financial officer after it announced it December that CFO Steve Louden would be stepping down from his position.
He rates the stock a buy with a $185 target price.