There are hundreds of stocks that will be on the move this week as they serve up fresh financials. One hot-and-cold name that should be particularly volatile is Roku(NASDAQ: ROKU). The company that put TV streaming on the map will announce its second-quarter results on Thursday.
It's been a tale of two years for Roku investors. The stock that has plummeted since peaking in 2021 seemed to finally be getting on track in 2023. The shares soared 125% last year, but the upticks didn't last. Roku has given back more than half of those gains, trading down 36% so far in 2024.
Channel surfing for something good
A strong report after Thursday's market close can naturally jump-start the stumbling stock on Friday. Another unimpressive quarter can keep the shares sliding. The stock dropped 10% the day after Roku posted mixed results for the first quarter on April 26. It's now trading slightly higher since that day, but that only raises expectations for a game-changing performance.
Analysts see revenue rising 21% to $937.6 million for the three months ending in June, in line with the $935 million that Roku itself was modeling for the quarter three months ago. If it does deliver better than 20% top-line growth, it would be its fifth consecutive quarter of double-digit gains and its strongest year-over-year showing in more than two years.
Near-term revenue growth isn't what has kept Roku in the market's doghouse this year. Investors are concerned about the other end of the income statement, where losses continue. It has served up more red ink than expected in two of its last three reports, even as the deficits have contracted in recent quarters. The $65 million deficit in its second-quarter outlook would be a sizable improvement over the $107.6 million bottom-line hole it served up a year earlier, but a potentially problematic sequential deterioration from the $50.9 million loss it delivered in the first quarter. Are Roku's cost-cutting initiatives losing steam just as it was growing closer to a return to profitability?
Image source: Roku.
Other boxes to tick
Unlike the share price this year, Roku's popularity is expanding. The record 81.6 million streaming households it was serving at the end of March is a 14% improvement from where it was a year earlier. The 30.8 billion hours of content streamed through its operating system soared 23%.
Usage outpacing user growth is a great sign of engagement, but it's a problem for Roku since average revenue per user remains largely flat over the past year. Roku needs the connected TV advertising market to get back on track. Given the scalability of its business model and high margins of its platform business, even a modest improvement in average revenue per user can catapult the bottom line closer to profitability.
There are also competitive concerns, largely Walmart's pending acquisition of Vizio that would turn the country's largest retailer into a direct competitor in streaming operating systems. The $2.3 billion deal has run into some regulatory resistance since being announced more than five months ago. Walmart may have an update when it reports quarterly results in two weeks. Either way, a blowout performance by Roku on Thursday afternoon can send bears back into hibernation in the short run. There is a lot riding on what the pioneer of streaming service stocks has to say later this week. Bulls and bears will be watching.
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Rick Munarriz has positions in Roku. The Motley Fool has positions in and recommends Roku and Walmart. The Motley Fool has a disclosure policy.
