Pivotal Research says the results are 'the best it is ever going to get'
Shares of Roku (ROKU) moved higher on Friday after the company reported fourth quarter results, adding that it expects fiscal 2020 revenue to be up 42% year-over-year.
RESULTS AND GUIDANCE: On Thursday after the market close, Roku reported a fourth quarter loss per share of (13c), slightly better than the (14c) loss analysts were expecting. Revenue of $411.23M, however, handily beat the $391.61M consensus.
For all of 2019, Roku said streaming hours were up 16.3B y/y to a record-high of 40.3B. Roku added 9.8M incremental active accounts in 2019 to reach 36.9M at year end, it added. Average Revenue Per User, or ARPU, increased $5.19 y/y to $23.14.
Looking ahead, Roku forecast first quarter revenue of $305M, above the $297.48M analysts' currently expect. The company noted that Q1 is seasonally its softest quarter from a revenue perspective, with revenue that has historically been around 25% lower sequentially than Q4. The company also forecast fiscal 2020 revenue of $1.6B, above the $1.58B consensus, amounting to roughly 42% year-over-year growth. "We anticipate overall revenue seasonality to be similar to 2019 with our seasonally strong Q4 accounting for approximately 35% of annual revenue," it said.
EXECUTIVE COMMENTARY: "2019 was a tremendous year for TV streaming as the massive shift of the TV ecosystem gained momentum. These developments were a clear indication that traditional media, as well as new entrants, plan to compete aggressively in OTT and we believe Roku is the best platform for them to engage streamers," the company said in its Q4 shareholder letter. "While 2019 was a tipping point in commitments to streaming, the full force of change is still to come," the company wrote.
Roku’s 2020 outlook does not include material impacts from the coronavirus outbreak in China, where the company does manufacturing. “There is potential for more significant manufacturing and supply-chain disruptions if the outbreak becomes more severe, which may hamper our and our partners’ abilities to replenish inventory after a strong holiday season,” Chief Financial Officer Steve Louden said on the company's earnings conference call.
WHAT'S NOTABLE: Chief Executive Officer Anthony Wood also offered his first comments on the Fox (FOXA) distribution agreement, telling analysts on the conference call that "When [programmers] succeed, we succeed. We participate in some of that upside that we helped create. In terms of deals, we renew thousands of deals a year and generally we’re able to reach mutually agreeable terms. It’s not a zero-sum game." The executive added that "In the case of streaming, it’s a new business for everyone. It’s just a different dynamic. The dynamic is that we’re trying to help build businesses."
Meanwhile, Wood also noted that the Disney+ (DIS) launch is an "important sign that the streaming decade has really started." Wood said the company’s "hat is off" to Disney for its "impressive" start “in just three months."
BEAT AGAINST 'FAVORABLE BACKDROP': Against the "most favorable backdrop possible" for Roku during Q4, which included the launch of Disney+, Apple TV+ (AAPL), a "particularly awful PayTV quarter" and the fact that new real competition had not launched yet, the company beat consensus subscriber and revenue expectations, Pivotal Research analyst Jeffrey Wlodarczak said in a note titled "The Best It is Ever Going To Get." However, management pointed to a "year of investment in 2020" that drove 2020 earnings materially below consensus expectations, added the analyst. Looking forward, Wlodarczak sees "signs of all areas of the ecosystem beginning to squeeze Roku." These include traditional distributors, led by Comcast (CMCSA) and Cox, aggressively attacking the direct-to-consumer aggregation opportunity with free equipment and programming, says the analyst. Further, TV manufacturers generate little to no profit from their relationship with Roku, and they will inevitably push back, argued Wlodarczak.
Meanwhile, Morgan Stanley analyst Benjamin Swinburne said Roku delivered "impressive account growth," but he said Platform revenues were below his and consensus expectations in Q4 despite strong Disney+ subscriber adoption and he contends that decelerating Platform ARPU limits upside. Guidance for Q1 implies organic Platform revenue growth excluding Dataxu further decelerates, said Swinburne, who believes Roku's current valuation bakes in expectations for continued upside surprises. He maintains an Underweight rating and $110 price target on Roku shares.
RBC Capital analyst Mark Mahaney raised his price target on Roku to $170 and noted that the company's active accounts grew by a record 4.6M and its platform now looks like a "sustainable" 50% grower. Mahaney added that Roku fundamentals were "solid," with a very slight deceleration from robust levels last quarter. He kept his Outperform rating on the stock.
PRICE ACTION: In morning trading, shares of Roku are up 3.6% to $144.07.