Roku (NASDAQ:ROKU) announced its Q2 2019 results Wednesday after the markets closed. On a scale of one to 10, with 10 being excellent and one being abysmal, the video streaming platform company delivered an eight, sending Roku stock higher in after-hours trading. 

As stocks go, I have been a fan of ROKU, all the way back to 2017, shortly after going public. I like its focused business model. Roku’s not trying to be everything to everyone. And it’s winning as a result. 

In the latest quarter, there are at least five significant metrics that suggest Roku stock has plenty of gas left in the tank. By the end, if you don’t own ROKU stock, you might consider it. 

Roku’s Active Accounts Are Up

I consider these first two metrics to be the ones investors should keep an eye on. As long as Roku is doing a good job growing these two, the Roku stock price should continue moving higher.

Roku finished the second quarter with 30.5 million active accounts, 39% higher than a year earlier and 4.8% higher than in Q1 2019. Ideally, both percentages should be positive each quarter. 

Part of the growth in active accounts is due to the lower average selling price of its streaming players. As a result, it sold 36% more player units in the second quarter, its highest growth rate in the past nine quarters. 

While most of the company’s revenue comes from platform sales, which accounted for 67% of Roku’s revenue in the quarter, the fact that it was able to grow the number of player units by 36% year over year is a huge bonus. 

Streaming Hours Off the Charts

Roku had 9.4 billion streaming hours in the second quarter, 72% higher than a year earlier, and 500 million higher than in the first quarter. That means the average active account watched 308 hours of shows and movies in the second quarter compared to 306 hours in the first quarter. 

If that number’s moving higher, you know you’re doing well. 

Here’s what I said in April about Roku’s 2018 streaming hours:

“Active accounts increased by 40% to 27.1 million, while the average active account viewed 885.61 hours in 2018, 15.5% higher than a year earlier.”

In the second quarter, the number of active accounts increased by about the same amount as in 2018, while the streaming hours increased by 72% year over year.

You don’t have to be a rocket scientist to know that these first two metrics make an increase in average revenue per user (ARPU) in the second quarter virtually guaranteed.  

ARPU Up

In the second quarter, the average revenue per user was $21.06, 27% higher than a year earlier, and 17% higher than the $17.95 ARPU at the end of 2018. In two quarters, it has gained $3.11 in revenue per user. 

“We achieved two significant milestones: active accounts passed 30 million and ARPU surpassed $20. We beat our outlook for revenue, gross profit and adjusted EBITDA,” stated Roku’s letter to shareholders. 

While it will get harder to move the ARPU needle, I believe the premium subscriptions it has introduced will help ROKU continue to monetize its platform in the coming quarters. 

As ROKU also stated in the letter to shareholders, the industry-wide shift to streaming is accelerating, and Roku is at the heart of it.  

Roku Stock Gross Profit Higher

While its gross profit increased by 47% in the quarter to $114.2 million, its gross profit margin dropped 390 basis points to 45.7%. However, the company’s focus continues to be on increasing the gross profit and not the gross margin. 

In the third quarter, ROKU expects gross profits of between $114-119 million. In fiscal 2029, it expects gross profits of at least $480 million. It will continue to reinvest incremental gross profit in its business to maintain its competitive edge. 

I wouldn’t get too hung up on the 390-basis-point decline in gross margins. The company isn’t.    

Adjusted EBITDA Higher for Roku Stock

As the quote mentioned earlier, Roku beat its outlook for adjusted EBITDA in the quarter generating a profit of $11.1 billion, 56% higher than the previous year, and 11% higher on a sequential basis from the first quarter. Year to date, its adjusted EBITDA is up 234% to $21.1 million. 

In fiscal 2019, Roku expects to generate $30-$40 million in adjusted EBITDA, considerably higher than its original estimate of -$5 million to $5 million it provided in February. 

As I have stated in the past, as soon as Roku delivers a GAAP profit for an entire fiscal year, the Roku stock price will skyrocket. 

Could fiscal 2019 be the year? I think it could.   

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.