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1Q22 Summary
Roku (NASDAQ:ROKU1Q22 revenue for ) was $734 million (+28% YoY), beating consensus of $749 millions. Platform revenue grew 39% to $647million, while player revenue declined 19%. As a result, Player revenue contributed less to the top-line (12% vs. 19% in last year).Smart TV sales are becoming increasingly important to growth. Platform gross margin was 59% lower than 67% in 1Q21 because of higher mix of low-margin video ads. Player gross margin was -17% because of supply chain challenges Roku plans to continue absorbing higher costs to drive new customers. Roku added 1.2million active accounts in Q1 to reach 61.3million. Streaming hours rose 14% to 20.9 Billion. ARPU grew 34% YoY to $42.9
Outlook
Revenue guidance for 2022 at 35% growth and adj. EBITDA margin of 4.4% remains unchanged. Roku expects revenue to reach $805 million in 2Q22 (up 23% YoY/lower Street’s $823million) and adj. EBTIDA is $0, as Roku expects a 90% YoY rise in OPEX investments. As Platform revenue continues to shift away from higher-margin media and entertainment (M&E), and content distribution, the Q2 gross margin is expected to be 49%. This compares to 52% last year. Supply chain issues will continue putting Player gross margin in negative territory.
Comps Are Tougher Than Ever
Roku will have a high comp going into Q22, as the top line was able to benefit from a 2Q21 comp with 81% growth. To achieve the management’s target to grow revenue by 35% in 2022, revenue must increase by 40% in 2H22. This will be on top of strong growth of 40% in 2H21. This is a difficult goal. Active account growth will likely be limited by a pull-forward of TV demand during the pandemic, as well ongoing supply chain challenges and high TV prices. Roku, the US’s largest streaming player with nearly 60 million households, will likely limit domestic account growth by selling TV units. The JV between Charter and Comcast to move into streaming is another thing to watch.
Netflix Going Into Advertising
Netflix’s (NFLX), decision to offer an advertising-supported tier will likely give Roku a new source for revenue. Both companies have a longstanding relationship where Roku receives a cut of each Netflix subscription. As Netflix loses new subscribers, monetization by advertising becomes the only option. Roku’s 60 million households will become an important channel just as other AVOD providers like Hulu and Peacock. It is unclear at this stage how much Roku will demand for ad inventory from Netflix. However, Netflix advertising will be in high demand as brands finally have access to audiences that can’t be reached by traditional TV.
Thoughts on The Stock
Roku stock saw a decent rise after earnings, likely because investors believe the worst is over and comps should be easier in 2H22. It is important to remember that the company is currently going through a major investment cycle. Expenses will outgrow revenue, which poses challenges from a profitability perspective. The stock has dropped almost 60% YTD, and 80% from ATH. Therefore, the valuation of the company isn’t stretched at 3.5x 2022. Revenue of $3.7 million. However, the market seems not to value growth stories based solely on top-line growth. Roku’s lack of profits in an inflationary climate that calls for tightening monetary policy seems concerning. The stock will likely continue to be volatile in the future, according to me.
