Tech

Roku reports strong user growth, but sour ad business outlook

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Key Points
  • Roku reported earnings for its first quarter of 2020 after the bell on Thursday that met estimates for its loss per share and beat on revenue.
  • The coronavirus pandemic has caused advertisers to pull back spending on many platforms.
  • But streaming services have reported huge spikes in subscribers during the crisis as stay-at-home orders have forced more people to stay inside.

In this article

Anthony Wood
David Orrell | CNBC

Roku reported earnings for its first quarter of 2020 after the bell on Thursday that met estimates for its loss per share and beat on revenue. The report provided a glimpse into the impact of the coronavirus pandemic on its business as advertisers have pulled back spending amidst economic uncertainty.

The stock was down as much as 10% after hours on the report after the company said it saw a greater number of ad cancellations than usual.

Here's what Roku reported:

  • Loss per share: 45 cents 
  • Revenue: $321 million

Wall Street anticipated a loss per share of 45 cents on revenue of $307 million, based on Refinitiv consensus estimates. However, it's difficult to compare reported earnings to analyst estimates for Roku's first quarter, as the pandemic continues to hit global economies and makes earnings impact difficult to assess.

As more people have been staying inside during the pandemic, Roku said it gained 2.9 million incremental active accounts in the quarter, reaching 39.8 million total, a 37% increase year-over-year. It also saw streaming hours surge by 1.6 billion, bringing it to a record 13.2 billion hours, a 49% increase year-over-year.

The company booked $232.56 million in platform revenue, which includes advertising and licensing fees for its software, and $88.21 million in its player segment, which includes device sales.

Roku said its advertising business has seen higher than normal cancellations, but it was offset by other advertising that moved to its platforms from traditional TV. Despite the pullback in advertising across media due to the coronavirus pandemic, Roku said it still expects its ad business to grow, though at a slower pace.

"In summary, while our advertising business faces near-term challenges, our content distribution business, as well as overall consumer engagement, have benefited from a surge in OTT usage," the company said in its letter to shareholders. "There can be no assurance that these patterns will continue through the remainder of the second quarter or throughout 2020; however, we believe that they may represent an acceleration of the longer-term trends reshaping the industry that were already well established prior to COVID-19."

On the company's earnings call, CEO Anthony Wood compared the shift of ad dollars from linear to OTT to the shift from print to digital media during the last recession.

"Spending will come back, but it's likely in our view not to come back in the way that it had been," Wood said. "Even in the case of sports, we think that this disruption will force a reassessment broadly by marketers."

Roku CFO Steve Louden declined to provide full year 2020 guidance after the company previously pulled its earlier outlook. He said the company is likely to run an adjusted EBITDA loss for the year.

Some companies, like Google and Facebook reported signs of recovery in their advertising businesses going into April, while others, like Twitter, offered less reassurance.

While advertising spend has been hurt, consumers have been spending more time on streaming services in general. Services including Netflix and Disney+ have reported huge spikes in subscribers during the crisis as stay-at-home orders have forced more people to stay inside.

Netflix added about 15.8 million global subscribers in its first quarter, a 64% jump compared to the same quarter last year. Subscribers to Disney's new streaming service accelerated as well, leaping to 54.5 million paid subscribers as of May 4, up from from 33.5 million at the end of its first quarter on March 28.

But Netflix executives warned the growth wouldn't last forever as people come out of lockdown. And social distancing rules has forced TV and film executives to delay production, which will likely cause a dearth of new content later in the year.

Roku said demand for its hardware including TVs has remained strong despite supply chain issues like factory closures in China. As factories have reopened and Roku tries to restock to meet the demand, the company said it's had to spend more on air freight and anticipates continued higher air freight costs in the near-term.

Roku said it's working with its retail partners and TV brands as it anticipates changes in shopping behavior later in the year, including a shift to e-commerce platforms.

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