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Roku (NASDAQ:ROKU) Misses Q2 Revenue Estimates, Stock Drops 26.9%


Adam Hejl /
2022/07/28 4:24 pm EDT
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Streaming TV platform Roku (NASDAQ: ROKU) missed analyst expectations in Q2 FY2022 quarter, with revenue up 18.4% year on year to $764.4 million. Guidance for the next quarter also missed analyst expectations with revenues guided to $700 million at the midpoint, or 22.4% below analyst estimates. Roku made a GAAP loss of $112.3 million, down on its profit of $73.4 million, in the same quarter last year.

Is now the time to buy Roku? Access our full analysis of the earnings results here, it's free.

Roku (ROKU) Q2 FY2022 Highlights:

  • Revenue: $764.4 million vs analyst estimates of $804.6 million (5% miss)
  • EPS (GAAP): -$0.82
  • Revenue guidance for Q3 2022 is $700 million at the midpoint, below analyst estimates of $902.6 million
  • Free cash flow was negative $149.1 million, down from positive free cash flow of $87 million in previous quarter
  • Gross Margin (GAAP): 46.4%, down from 52.4% same quarter last year
  • Active Accounts: 63.1 million, up 8 million year on year

Spun out from Netflix, Roku (NASDAQ: ROKU) makes hardware players that offer access to various online streaming TV services.

Consumers today expect goods and services to be hyper-personalized and on demand. Whether it be what music they listen to or what movie they watch, or finding a date, online consumer businesses today are expected to delight their customers with simple user interfaces that magically fulfill demand. Subscription models have increased usage and stickiness of many online consumer services.

Sales Growth

Roku's revenue growth over the last three years has been exceptional, averaging 51.5% annually. The initial impact of the pandemic was positive for Roku's revenue, but growth rates subsequently normalized.

Roku Total Revenue

This quarter, Roku reported a less than stellar 18.4% year on year revenue growth, and this result fell short of what analysts were expecting.

Guidance for the next quarter indicates Roku is expecting revenue to grow 2.94% year on year to $700 million, slowing down from the 50.5% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 33.8% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Usage Growth

As a subscription app, Roku generates revenue growth by growing both the subscriber numbers, and the total lifetime value of the average subscriber.

Over the last two years the number of Roku's monthly active users, a key usage metric for the company, grew 19.4% annually to 63.1 million users. This is a strong growth for a consumer internet company.

Roku Active Accounts

In Q2 the company added 8 million monthly active users, translating to a 14.5% growth year on year.

Key Takeaways from Roku's Q2 Results

With a market capitalization of $11.8 billion, more than $2.05 billion in cash and the fact it is operating close to free cash flow break-even the company is in a strong financial position to invest in growth.

It was great to see that Roku’s user base is growing. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Roku. The company is down 26.9% on the results and currently trades at $62.33 per share.

Roku may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.