• Roku Shares Upbeat Q1 ’20 Estimated Results

    Roku shared upbeat estimates on its Q1 ’20 active accounts, streaming hours and profitability yesterday, ahead of its May 7th earnings release. Roku said active accounts were approximately 39.8 million at the end of the quarter, up almost 3 million during the 3 months. That’s 49% higher than the 2 million active accounts it added in Q1 ’19. Roku has nearly doubled its active account base in the past 2 years; back on March 31, 2018 it was 20.8 million.

    Streaming hours in Q1 ’20 also surged, to 13.2 billion, up 49% from 8.1 billion in Q1 ’19 and more than double the 5.1 billion hours from Q1 ’18. The increase in streaming hours is noteworthy because Roku said that in Q1 it finished rolling out its “Are you still watching?” feature which prompts the viewer after 4 hours of viewing and will terminate the session if there’s inactivity. The feature would suppress growth in streaming hours because sessions when people have fallen asleep or left the room would not play on indefinitely. The other impact is that for free, ad-supported services being watched on Roku and for Roku itself, ad inventory and monetization would be suppressed.

    But this was mitigated in Q1 because Roku said that “in late Q1 Roku started to see the effects of large numbers of people ‘sheltering at home’….which has resulted in an acceleration in new account growth and an increase in viewing.” In other words, during the quarter Roku experienced two pretty strong offsetting forces. Eventually, as the virus passes and viewers resume their normal lives, the quarterly streaming hours metric will be important to monitor (note, like many other companies, Roku withdrew its 2020 guidance due to the uncertainty the virus has caused).

    Roku also said its total net revenue for Q1 ’20 will be in the $307-$317 million range, better than its forecast of $300-$310 million, Gross profit will be in the $139-$144 million range, compared to the forecast of $143-$148 million. Considering the abrupt shutdown of the economy and ad spending by the middle of March, with at least 2 weeks remaining in the quarter, Roku’s results suggest it was running ahead of forecast before the virus hit fully. Roku said that it expects “some marketers to pause or reduce ad investments in the near term, we believe that the targeted and measurable TV ads and unique sponsorship capabilities that Roku offers are highly beneficial to brands today.”

    With a base of nearly 40 million active users and consumption of free, ad-supported streaming services increasing due to stay at home guidelines and consumer belt-tightening, Roku seems to be well-positioned to weather the virus. The Roku Channel, Roku’s curated section of free TV and movies, is also becoming more appealing, recently with the addition of classic programming from HBO. As Roku keeps more viewers in The Roku Channel, it benefits from more ad monetization and payments and also from driving trials/subscriptions to SVOD services. With the upcoming release of Peacock and HBO Max, intensifying SVOD competition is also a positive for Roku.

    Roku will provide a full update on its Q1 on its May 7th earnings call.