Last week ended with multiple tech giants posting estimate-beating 2Q earnings results. Apple, Facebook and Amazon all beat Street forecasts in the “coronavirus quarter.” This week, another tech upstart will try to match their performances. Can OTT leader Roku (ROKU) beat the estimates, too?
Roku has undoubtedly benefited from the “stay-at-home” measures implemented to halt the virus’ spread. More time inside naturally equates to more time watching TV/streaming. The question for Roku, like so many companies dependent on ad spend, is how much of an effect will the contraction of advertising budgets have on the balance sheet.
Roku will report its quarterly results on August 5 and ahead of the release, RBC analyst Mark Mahaney has been crunching the numbers.
Mahaney is forecasting revenue of $317 million, versus the Street’s call for $313 million. Additionally, the 5-star analyst estimates Roku will post an EBITDA loss of $37 million, lower than the Street’s -$28 million prediction.
Q2 Active Accounts could reach 41.6 million, an increase of 36% year-over-year, which will translate to net adds of 1.8 million (compared to 1.4 million in 2Q19).
Mahaney said, “Our Q2 estimate of 36% year-over-year growth seems reasonable, as comScore data suggests largely stable trends (as measured by avg. daily OTT households) in May and June. In fact, according to Roku’s annual Cord Cutting study, ~33% of US TV HHs are now Cordless and ~50% of all US TV HHs said they stream more free Ad-supported TV than before. COVID-19 and the pause of live sports have been acting as key catalysts for cord cutters and ‘cord shavers’ this year, a positive for OTT platforms, including Roku.”
The move to OTT services is a trend that is expected to gather steam, and could provide an additional tailwind for Roku as the year progresses. A recent IAB (interactive advertising bureau) survey found that 59% of advertisers plan on upping OTT ad spend in 2H20. According to the same report, OTT ad spend could increase by approximately 26% year-over-year in 2H20.
For Mahaney, the “survey results seem reasonably positive for Roku implying that the company should be able to generate ‘substantial’ year-over-year Ad Rev growth in 2020.”
No change, then, to Mahaney’s rating, which remains an Outperform (i.e. Buy). The analyst’s $171 price target stays as is, too. There’s potential for 10% upside, should the figure be met over the next 12 months. (To watch Mahaney’s track record, click here)
Based on 7 Buy ratings, 5 Holds and 2 Sells, ROKU stock has a Moderate Buy consensus rating. However, the analysts expect the share price to decline by 14% over the next year, as the average price target clocks in at $133.62. (See Roku stock-price forecast on TipRanks)
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