Roku Reels After Q4 Numbers Disappoint Wall Street; Streaming Provider Reaches 60M Active Accounts

Roku shares continued their slide after the closing bell after the streaming company issued a disappointing fourth-quarter earnings report.

Shares in the company fell 10% during the regular session, closing at $144.71. They dropped another 12% in after-hours trading before recovering slightly, but staying in the red.

Revenue of $865.3 million fell short of Wall Street analysts’ consensus forecast. Earnings per share topped estimates, reaching 17 cents, but there were enough other worrisome trends to cast a shadow. The company said it has reached 60.1 million active accounts, another encouraging milestone and a 17% uptick from the same period in 2020.

After starting out as a maker of connected TV devices, Roku years ago began a successful effort to license its user interface to smart TV makers, which is now in one-third of all North American smart TVs. In the quarter, though, overall U.S. TV unit sales fell below pre-Covid 2019 levels.

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“Some of our Roku TV OEM partners were hit particularly hard with inventory challenges, which negatively impacted their unit sales figures and
market share in Q4,” the company said in its quarterly shareholder letter. “These reduced Roku TV model sales were partially offset by our player unit sales, which remained above pre-Covid 2019 levels and down only 4% year-over-year (despite comparing against a pandemic-driven surge in 2020).”

The company said its average revenue per user ($41.03, up 43% from a year ago) as well as “careful management of our streaming player supply chain and inventory” helped keep rising material and shipping costs from hitting the company’s device business. But it resulted in player gross margin turning negative in the third and fourth quarters and also for the full year.

“While we expect market conditions to result in player-related costs remaining elevated for the near term, we do not believe these conditions will be permanent,” the  shareholder letter said.

Roku stock has been in free-fall since last July, when it peaked at $490.76, but the company says its makeup will insulate it from the questioning of streaming as a business that is hitting media stocks lately. The more crowded the streaming field gets, with Paramount+ and Discovery+ joining HBO Max, Disney+, Peacock and Apple+ as new competitors for Netflix over the past year, the more they need to stand out on Roku, the company maintains. In the fourth quarter and the full year 2021, media and entertainment promotional spending grew faster than overall platform revenue, the company said.

Platform revenue in jumped 80% in 2021 compared with 2020, reaching $2.3 billion. One key driver was the Roku Channel, the company’s hub mostly dedicated to free, ad supported streaming. Original programming was added to the channel in 2021, boosting its reach to households with 80 million people. Total streaming hours on Roku Channel doubled last year compared with 2020. Advertising on the Roku Channel is a key element of extending brands’ reach, the company said, with 91% of adults aged 18 to 49 reporting that ads they were shown on the Roku Channel were not ones they had seen on traditional TV.

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