Roku (NASDAQ:ROKU) is likely to publish Q2 2023 results on July 27, reporting on another quarter that is likely to see the company’s bread-and-butter platform business continue to face headwinds as consumer and advertiser spending remains challenging. We expect revenue to come in at $774 million, slightly ahead of consensus estimates and up 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 for the second quarter? See our analysis of Roku Earnings Preview for a closer look at what to expect when the company publishes earnings.
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 Q1, the division’s sales contracted by 1% year-over-year. 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, continue to ease. Over Q1, hardware sales were up by about 18% year-over-year.
Roku’s elevated operating expenses have also been a problem of late. For perspective, the company saw operating costs for Q1 2023 surge by a massive 42% year-over-year driven by higher sales and marketing costs. We still expect Roku’s operating margins to remain under pressure although the pace of growth in operating expenses is likely to cool off. For Q2, the company expects operating expenses to rise by “mid-teens” percentages (roughly in the middle of 13% and 19%), a nearly 30-point sequential improvement.
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So is Roku stock a buy at current levels of around $76 per share? The long-term outlook for the company remains solid as the platform business is likely to continue to expand in the long run as ad dollars continue to shift away from linear TV to digital video formats. However, the company still remains deeply loss-making and the near-term pressures on the ad market could also persist. We value Roku stock at about $74, which is roughly in line with the current 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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