Streaming TV platform Roku (NASDAQ: ROKU) beat analyst expectations in Q3 FY2022 quarter, with revenue up 11.9% year on year to $761.3 million. However, guidance for the next quarter was less impressive, coming in at $800 million at the midpoint, being 10.5% below analyst estimates. Roku made a GAAP loss of $122.1 million, down on its profit of $68.9 million, in the same quarter last year.
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Roku (ROKU) Q3 FY2022 Highlights:
- Revenue: $761.3 million vs analyst estimates of $693.5 million (9.77% beat)
- EPS: -$0.88 vs analyst estimates of -$1.29 (31.9% beat)
- Revenue guidance for Q4 2022 is $800 million at the midpoint, below analyst estimates of $894.6 million
- Free cash flow was negative $29.7 million, compared to negative free cash flow of $149.1 million in previous quarter
- Gross Margin (GAAP): 46.8%, down from 53.5% same quarter last year
- Active Accounts: 65.4 million, up 9 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 impressive, averaging 48.3% annually. The initial impact of the pandemic was positive for Roku's revenue, but growth rates subsequently normalized.
This quarter, Roku beat analyst estimates but reported an mediocre 11.9% year on year revenue growth.
Roku is guiding for revenue to decline next quarter 7.54% year on year to $800 million, a further deceleration on the 33.1% year-over-year decrease 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 9.45% over the next twelve months.
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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 18.8% annually to 65.4 million users. This is a strong growth for a consumer internet company.
In Q3 the company added 9 million monthly active users, translating to a 15.9% growth year on year.
Key Takeaways from Roku's Q3 Results
Since it has still been burning cash over the last twelve months it is worth keeping an eye on Roku’s balance sheet, but we note that with a market capitalization of $7.83 billion and more than $2.01 billion in cash, the company has the capacity to continue to prioritise growth over profitability.
We were impressed by how strongly Roku outperformed analysts’ expectations this quarter. And we were also glad to see the user growth. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and the revenue growth was quite weak. Overall, this quarter's results were not the best we've seen from Roku. The company is down 17.3% on the results and currently trades at $44.82 per share.
Should you invest in Roku 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.
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The author has no position in any of the stocks mentioned.