Roku, Inc. (ROKU) is a streaming platform that offers its users a wide range of entertainment options. The stock has had its fair share of ups and downs recently. Cost-cutting measures and potential user gains ahead of ROKU’s Q2 results have likely contributed to the current positive market sentiment.

As we anticipate their upcoming second-quarter earnings report, the main question is whether ROKU can maintain its momentum. Forecasts indicate a 10.7% year-over-year revenue surge to $937.73 million, reflecting steady growth and financial resilience. However, analysts expect the company to post a loss per share of $0.42.

Roku has consistently exceeded revenue estimates in each of the trailing four quarters, including the first quarter. The company reported revenue of $881.47 million in the first quarter, up 19% year-over-year and above analysts’ estimates of $850.35 million. Also, its adjusted loss per share of $0.35 was better than the anticipated loss of $0.62.

During the quarter, Roku added 1.6 million new streaming households in Q1, and its streaming hours surged by 23% year over year to 30.8 billion. Meanwhile, its trailing 12-month average revenue per user (ARPU) remained flat year-over-year at $40.65.

Thanks to an uptick in customer counts and streaming hours, Roku has experienced three consecutive quarters of positive adjusted EBITDA and free cash flow. Moreover, the company’s dominance as the No. 1 smart TV operating system in the U.S. is a testament to its growing user base.

Despite an upbeat performance, the stock has lost 18.2% over the past year and 31.9% year-to-date to close the last trading session at $62.44. However, it has gained 10.8% in the past month. Looking ahead, Roku is forecasting Q2 revenue of $935 million, gross profit of $410 million, and adjusted EBITDA of $30 million.

With that in mind, let’s look at factors that could influence ROKU’s performance in the upcoming months.

Strong Financial Performance

In the first quarter that ended March 31, 2024, ROKU’s net revenues increased 18.9% year-over-year to $881.47 million, with a Platform revenue of $754.94 million. Its gross profit grew 15.2% from the year-ago value to $388.29 million.

The company’s adjusted EBITDA for the quarter came in at $40.86 million versus an adjusted EBITDA loss of $69.08 million in the prior year. Moreover, its net cash inflow from operating activities was $46.68 million, compared to a cash outflow of $153.41 million in the year-ago period.

As of March 31, 2024, its cash and cash equivalents increased to $2.06 billion from $2.02 billion as recorded on December 31, 2023. Also, its trailing-12-month free cash flow improved by 195.2% from the prior-year quarter to $426.75 million.

Impressive Historical Growth

Over the past three years, ROKU’s revenue has grown at a CAGR of 21.3%. In addition, the company’s total assets have grown at a CAGR of 5.9% over the same period, and its levered free cash flow has improved at a 56.5% CAGR.

Mixed Analyst Expectations

Analysts expect ROKU’s revenue for the third quarter (ending September 2024) to increase 10.5% year-over-year to $1.01 billion. However, the company is expected to post a loss per share of $0.48 in the same quarter.

Similarly, for the fiscal year ending December 2024, ROKU’s revenue is expected to increase 12.5% year-over-year to $3.92 billion. On the contrary, its loss per share for the current year is estimated to be $1.81.

Stretched Valuation

In terms of forward EV/Sales, ROKU is trading at 1.93x, 1.4% higher than the industry average of 1.94x. Likewise, the stock’s forward Price/Sales multiple of 2.30 is 86% higher than the industry average of 1.23x.

ROKU’s forward EV/EBITDA and Price/Cash Flow ratios of 60.41x and 34.50x are considerably above their respective industry averages of 7.78x and 8.15x. Moreover, its forward Price/Book multiple of 3.72 is 75.1% higher than the industry average of 2.12x.

POWR Ratings Exhibit Mixed Prospects

ROKU’s stance is apparent in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ROKU has a B grade in Growth, which is in sync with its solid financial performance in the last reported quarter and impressive historical growth.

However, it has a grade of C for Sentiment, consistent with its mixed analysts’ estimates. Also, with a 24-month beta of 2.46, the stock has earned a grade of D for Stability.

ROKU is ranked #40 out of 53 stocks in the B-rated Consumer Goods industry. Click here to access ROKU’s Value, Momentum, and Quality ratings.

Bottom Line

While ROKU seems well-positioned in the current digital entertainment marketplace, the decision to invest hinges on its long-term value proposition. While the company has made strides with adjusted free cash flow, it continues to operate at a loss in its bottom line, which may raise concerns for potential investors.

Moreover, the looming prospect of an anticipated loss per share in its upcoming quarterly report and stretched valuations raises additional uncertainties about its short-term performance. With that in mind, it could be wise for investors to wait for a better entry point in the stock.

How Does Roku, Inc. (ROKU) Stack Up Against Its Peers?

While ROKU has an overall grade of C, equating to a Neutral rating, you may also check out these A (Strong Buy) rated stocks within the Consumer Goods industry: Bosideng International Holdings Limited (BSDGY), Société BIC SA (BICEY), and Henkel AG & Co. KGaA (HENKY). To explore more A and B-rated consumer goods stocks, click here.

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ROKU shares were trading at $64.57 per share on Tuesday afternoon, up $2.13 (+3.41%). Year-to-date, ROKU has declined -29.55%, versus a 19.52% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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