Roku’s February 15 earnings report was amazing. The company added 4.6 million monthly active users in its fiscal Q4 for 2022 to reach 70 million and crushed Wall Street’s revenue expectations, leading its stock to jump 18 percent on Thursday and inspiring analysts to raise their outlooks.
Where those same analysts are torn is what this really means: Either Roku is on the verge of profitability, or — it could be a brief moment of bliss before big-picture trends hold Roku back.
Let’s start on the rosier side of things. Wedbush analysts love what Roku is selling, maintaining its rating of “Outperform” and raising its target price to $80 (up from $75). Why? When it comes to ad dollars coming over from linear to digital TV, Roku appears to be taking a huge chunk of market share.
“Once macroeconomic trends improve, Roku is poised to return to meaningful profitability as a platform and FAST channel leader,” Wedbush’s analysts wrote Thursday. “Roku is spending heavily on initiatives and content that will either pay off and drive revenue growth much higher than we modeled, or Roku can cut spending if it does not pan out. We expect the former.”
Wedbush also really liked Roku beefing up recent deals with Lionsgate and with Warner Bros. Discovery’s FAST channel, not to mention the company’s Walmart partnership that “could significantly boost its ability to monetize ads on its platform.” And they think Roku manufacturing TVs won’t cannibalize its cheaper, licensed Roku TVs and will allow the company rapid international expansion.
Moffett Nathanson takes a decidedly dimmer view: All studios are cutting content and marketing spending, more third-party FAST channels means more revenue sharing, and gross margins on Vizio’s TVs are “running at near zero.” It believes Roku profits “will be decidedly worse from here.”
“We are not luddites, yes, we see the future as streaming,” Moffett Nathanson’s analysts wrote. “Yes, we see the continuing (frightening) pressures facing the linear model. However, the current reality is that Roku’s biggest customers are now grappling with the economics of these pressures and are starting to pause the rapid escalation in streaming spending… it feels unrealistic that the revenue growth outlook (driven by revenue shares and Roku branded TV sets) will be that divorced from expense growth.”
Quinta Brunson and Daniel Radcliffe in “Weird: The Al Yankovic Story”
Aaron Epstein
Roku also introduced Charlie Collier, the former Fox exec and new president of Roku’s media division, for his first earnings call. He doubled down on investing more in original content like “Weird: The Al Yankovic Story” and the Reese Witherspoon and Zoe Saldana-produced reality series “Meet Me in Paris,” saying both drove tons of unique viewers.
“Roku is not just another player in streaming wars, but streaming wars are being fought on the Roku platform,” he said on Wednesday’s call. ‘That is a tremendous advantage for all of us.”
Analysts at Evercore ISI said under Collier’s leadership, the company seems very willing to embrace third-party partners. However, it downgraded Roku shares last July and cautioned that, without any big sports or access to political ad-spending, it’s hard to get too excited. “While we are incrementally constructive,” they wrote, “we remain on the sidelines.”
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