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Roku Reports Profit In 1Q As Results Beat Estimates; Shares Pop 9%

Shares of Roku (ROKU) were up 9% in extended trading on Thursday after delivering strong 1Q results. The company reported a profit of $0.54 per share versus a loss of $0.45 in the same quarter last year. Analysts were expecting a loss of $0.13 per share. The digital media player company posted revenues of $574.2 million in 1Q, up 79% year-on-year and topping consensus estimates of $492 million.

Roku stated in its letter to shareholders, “With so much outstanding content being made available on the Roku platform, publishers are investing heavily in promotion and leveraging our industry-leading, performance-driven marketing tools to build their TV streaming audiences. As a result, media and entertainment advertising (which includes what we’ve traditionally called our “audience development” business), grew faster than the overall platform in Q1 2021.”

Platform revenues were up a whopping 101% year-on-year to $466.5 million driven by significant growth in content distribution and advertising. Roku said that its content partners made full use of its promotional tools to drive more subscriptions and user engagement, while advertisers increased their spending on the company’s connected TV (CTV) platform.

Roku’s active accounts increased 35% year-on-year to 53.6 million, while users streamed 18.3 billion hours of content, up 49% from the same quarter last year. The company earned $32.14 of average revenue per user (ARPU), an increase of 32% year-on-year.

In the first quarter, Roku also raised $1 billion through an at-the-market (ATM) stock offering. (See Roku stock analysis on TipRanks)

In the second quarter, Roku has forecast a 73% year-on-year growth in net revenues to $615 million and adjusted EBITDA of $65 million. The company also said that it expects revenues to grow at a more “robust” rate in the first half of this year as it faces tougher comparisons to FY20 in the second half of this year.

Following the earnings, Pivotal Research Group analyst Jeffrey Wlodarczak lowered the price target from $400 to $350 and reiterated a Hold on the stock. Wlodarczak said in a research note to investors, “Roku reported a solid beat of our (and consensus) 1Q financial expectations and missed our (and consensus) active account expectations… The fundamental backdrop for Roku remains solid as the company rides the wave of consumers migrating from traditional PayTV to streaming.”

Wlodarczak added, “The key for Roku in our opinion is to focus completely on building further scale by simply adding more and more subscribers which should give them significant leverage with DTC players and potentially allow them to move more aggressively into original programming without repercussions (which is clearly the, very difficult, but home run scenario (from here) for Roku investors that is not in our forecasts). We remain favorable towards Roku’s positioning but even with the significant stock pullback the valuation remains very expensive against what we again believe will be a tough backdrop for tech for at least the Summer of 2021.”

Overall, consensus among analysts is a Moderate Buy based on 16 Buys, 4 Holds, and 1 Sell. The average analyst price target of $467.55 indicates upside potential of 64.5% from current levels.

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