What’s In Store As Roku Reports Q1 Results

Roku (NASDAQ:ROKU) is likely to report Q1 2023 results toward the end of April, reporting on a quarter that is likely to see the company’s ad business face some headwinds. We expect revenue to come in at about $725 million, slightly ahead of consensus estimates and down by about 1% versus last year. We project that net losses will stand at about $1.25 per share, slightly lower than the consensus estimates.  So what are some of the trends that are likely to drive Roku’s performance this quarter?

Roku’s lucrative platform business – which sells advertising and content – has seen growth slow meaningfully in recent quarters as rising inflation and slowing consumer spending hurt spending by marketers on TV advertising. Over Q4, the division’s sales rose by just about 5%, a slowdown from the double-digit growth levels seen in recent quarters. However, we think that things could improve a bit on the hardware front, as the supply chain issues, that the company’s players’ business faced over the last year, likely ease. We still expect Roku’s operating margins to remain under pressure although the pace of growth in operating expenses is likely to cool off. While the company saw operating costs for Q4 2022 surge by a massive 71% versus last year, due to higher R&D and sales-related expenses, Roku expects that operating expenses will grow by about 40% in Q1 (a 30-point sequential improvement from Q4 2022), with expenses projected to grow by single-digits by Q4 2023.

Now, Roku stock rallied by almost 60% year-to-date in 2023. So is the stock still an attractive bet at current levels of about $65 per share? Although Roku’s business faces headwinds, they are likely temporary and we believe its lucrative platform business should continue to expand in the long run as ad dollars continue to shift away from linear TV to digital video formats. Despite economic headwinds, as of Q4 Roku’s active accounts jumped 16% to 70 million while streaming hours also rose 23% to 23.9 billion. Roku’s valuation is also attractive versus historical levels, with the stock trading at about 2.5x its projected platform revenues for 2023, down from levels of well over 10x in 2021. We value Roku stock at about $80, which is 23% ahead of the market price.  See our analysis on Roku Valuation: Expensive or Cheap for more details on what’s driving our price estimate for Roku. Our analysis of Roku Revenue has more details on the company’s business model and key revenue streams.

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