Roku (Nasdaq: ROKU) reported second-quarter earnings which were slightly better than expected. Shares were up slightly higher after earnings but finished lower. The major headline from its report was its bleak assessment of TV ad spending which it doesn't see recovering to pre-coronavirus levels until the second half of 2021.
Inside the Numbers
The company reported revenue of $356 million which was a 42% increase on a year over year basis and above expectations of $315 million. Earnings per share came in at a loss of $0.35 per share which was slightly better than expectations of a $0.50 per share loss.
Roku was cautious about upcoming quarters and its ability to meet its growth targets due to decreased ad spending. Due to these factors, it didn't give guidance for the rest of the year.
In the quarter, Roku added 3.2 million accounts for 41% growth on a year over year basis and now has a total of 43 million accounts.
The average revenue per user increased to $24.92, an 18% increase from last year. The company's two major sources of revenue are its platform business in which it makes money from movie rentals, subscriptions, and advertising. The other is its hardware. Overall, the company is a beneficiary of the cord-cutting trend.
Many investors were expecting that the boycott of Facebook (Nasdaq: FB) would result in a boost for Roku. Additionally, streaming providers like Disney (Nasdaq: DIS), AT&T's HBO Max (NYSE: T), and Netflix would be spending heavily on ads to promote their product to Roku users.
Roku Background
Roku was originally a Netflix (Nasdaq: NFLX) project to develop a streaming-media box. Netflix abandoned these plans just before launch, as it realized it would rather focus on being a part of every streaming-media box which would be difficult if it was also a competitor.
It ended up spinning out Roku as its own independent company. Roku went public in late 2018 and has gained more than 1,000% from its IPO date.
Stock Price Impact
Shares were initially higher following the report but gave up gains on management's comments that the growth in its ad business would be tougher due to the coronavirus's impact. Of course, a big portion of advertising comes from restaurants, hotels, airlines, and tourism which are going to be depressed for obvious reasons.
Before earnings, Roku was moving higher and looked poised to break out to new highs from its late-2019 highs. This breakout looks to be on hold given Roku's cautious outlook.