To The Moon

$Roku Inc(ROKU)$ will be reporting their Q4 2024 results on 13 Feb 2024 after the market close.

Market is bullish toward Roku (ROKU) ahead of the streaming platform's turn on the earnings calendar. As for ROKU the important upside valuation drivers in 2025 would be their connected TV (CTV) ad growth, and industry consolidation. ROKU is in a position to benefit from both.

ROKU fourth-quarter results is expecting to post revenue around $994.1 million, up 1% year over year which is below the consensus estimate of $1.1 billion.

Earnings per share is also expected at a loss of 41 cents which is an improvement from the same period one year ago at loss of 55 cents per share.

Roku (ROKU) Last Neutral Earnings Call Give 9.38% Change Since

The last earnings call on 30 Oct 2024 sentiment was neutral but ROKU still manage to provide a 9.38% since then, Roku achieved significant revenue growth and strong engagement metrics, buoyed by political advertising and increased device revenue.

However, challenges remain with flat ARPU and negative device gross margins, combined with ongoing pressures in the M&E market.

Roku (ROKU) Guidance To Focus On Retail Device Distribution Expansion

In the third quarter of 2024, Roku reported strong financial performance, achieving over $1 billion in total net revenue for the first time, marking a 16% year-over-year increase. Platform revenue grew by 15% to $908 million, driven by streaming services distribution and advertising activities. The device revenue saw a 23% year-over-year growth due to expanded retail distribution of Roku-branded TVs.

Roku's engagement metrics showed a 20% increase in streaming hours year-over-year, with an average of 4.1 streaming hours per household per day, up from 3.9 hours. The company achieved a gross profit of $480 million, a 30% increase from the previous year, with a total gross margin of 45%, up 480 basis points year-over-year.

Roku's adjusted EBITDA for Q3 was $98 million, significantly surpassing expectations, and free cash flow reached $157 million on a trailing 12-month basis. Looking ahead to Q4, Roku anticipates total net revenue of $1.14 billion, a 16% year-over-year increase, with a gross margin of 41% and adjusted EBITDA of $30 million.

I am expecting the loss to close up as the Q4 2024 should see ROKU retail sales of its devices increase due to the holiday and festive season, and also the increase of subscription for the streaming at the end of the year where customers would be spending more on entertainment for themselves and guests.

Roku (ROKU) ARPU and Margins Pressure Is A Concern

In the third-quarter, Roku reported a record breaking first quarter with over $1 billion in total net revenue, achieving $1.06 billion, a 16% increase year-over-year.

And platform revenue grew by 15% year-over-year to $908 million, driven by advertising and streaming services distribution, but the Average Revenue Per User (ARPU) remained flat year-over-year at $41.10, reflecting the growing share of international streaming households with different monetization stages.

I think we should be able to see an improvement on the ARPU and

Device Gross Margin To Improve With Higher Streaming Engagement

In the third-quarter, streaming hours were up 20% year-over-year, with engagement per account globally increasing to 4.1 hours per day from 3.9 hours. Device revenue increased by 23% year-over-year, supported by an expansion in retail distribution of Roku-branded TVs.

Device gross margin was negative 8%, a decrease of 10 basis points year-over-year. This has raised some concerns about margin degradation due to programmatic advertising and DSP integration, though they were addressed as manageable.

I would think that the concerns over the device gross margin as well as margin from advertising would be addressed in Q4.

We should continue to see significant outperformance in political advertising contributed to the quarter's results, as the U.S. Presidential campaign does contribute a part of this performance.

But we need to be aware of Media and Entertainment (M&E) market continues to be pressured, impacting advertising activities.

Strong Free Cash Flow To Continue

ROKU's free cash flow for Q3 2024 was $67.61M. For the 2024 fiscal year, ROKU's free cash flow was decreased by $323.14M and operating cash flow was $68.66M. See a summary of the company’s cash flow. Free cash flow was $157 million on a trailing 12-month basis, with the company ending the quarter with $2.1 billion in cash.

Roku (ROKU) Price Target

Based on 14 Wall Street analysts offering 12 month price targets for Roku in the last 3 months. The average price target is $83.07 with a high forecast of $100.00 and a low forecast of $55.00. The average price target represents a -2.02% change from the last price of $84.78.

I would think ROKU could continue to trade range-bound and the price would remain around $82 to $83 unless we see a significant improvement in its gross margins from its advertising and also device sales.

Technical Analysis - Exponential Moving Average (EMA)

Though ROKU is trading range-bound, we are seeing some potential, as ROKU remain trading above the 26-EMA but was below 12-EMA, this mean that the bulls is able to defend the 26-EMA, but will they be able to continue successfully?

I think we need to watch ROKU trading on 13 Feb before its earnings call, as there might be a shift in the investors sentiment.

Summary

ROKU might not be able to perform up to expectations and if that happen, investors sentiment would take a hit, and we might see a decline in the share price before its earnings call.

I would be monitoring how ROKU would be trading as there might be an opportunity to take.

Appreciate if you could share your thoughts in the comment section whether you think ROKU could provide a better margin earnings and ARPU.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.