Early on, Roku (NASDAQ:ROKU) proponents argued that the streaming equipment provider’s equity represented an easy buy. With cord cutting gaining significant momentum and disrupting the traditional entertainment content sector, Roku stock thundered to impressive gains in 2019. But with a critical fourth quarter of 2019 earnings test ahead, how will shares fare?
On Valentine’s Day eve, the streaming firm is scheduled to release its Q4 results. Consensus estimates for earnings per share is pegged at a loss of 14 cents. This is near the lower end of the estimate spectrum, which ranges from a loss of 18 cents to minus 4 cents.
That, however, is not necessarily something to worry about as Roku stock is clearly a growth name. And in this arena, covering analysts have a consensus revenue target of $391.6 million. Individual estimates range from $382 million to $404.2 million. In the year-ago quarter, ROKU rang up $275.7 million.
Although investors will focus on the headline metrics, I’m particularly interested in Roku’s monthly active user (MAU) count. Over the last nine quarters, year-over-year MAU growth has averaged 42.3% — which is a phenomenal figure.
At the same time, though, the last four quarters have seen the growth rate dip to 38.5%. And in Q3 2019, growth dropped to 35.7% YoY.
Again, the dip isn’t necessarily a reason to panic on Roku stock. However, the underlying company is seeing aggressive legacy competition from the likes of Amazon (NASDAQ:AMZN). Additionally, new entertainment options, such as Apple’s (NASDAQ:AAPL) namesake streaming platform, may eat away at Roku’s market share.
Thus, a strong MAU count in the Q4 earnings report could ease worries about Roku stock. Conversely, a poor showing could undermine sentiment.
Early Lead Could Sustain for Roku Stock
Although there’s always a chance that I could get this badly wrong, I’m confident that the streaming equipment provider will produce encouraging results.
Primarily, consumers love the Roku platform. According to a survey by nScreenMedia, Roku users spent 208 minutes on the streaming service daily during Q3 2019. That’s nearly three-and-a-half hours, which is significant for this reason: we’re clocking in crazy hours in the office.
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According to a Gallup poll, Americans averaged 47-hour work weeks during 2013 and 2014. A more recent poll suggested that Americans are averaging 44 hours weekly. Factor in the commuting traffic, plus mundane activities like cooking, and you’re left with very few hours for your own leisure.
With Roku’s nearly 3.5-hour daily viewership, that leaves little room for other forms of entertainment. And remember, critics against Roku stock have always cited competition as a headwind. Yet, one year ago, ROKU’s share of connected TV device shipments was 30%. This vastly outpaced Amazon’s Fire TV share of 12%, as well as Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Android TV and Chromecast at 9%.
Despite aggressive competition, bigger rivals have failed to upend the smaller Roku. Furthermore, experts believe that even by 2022, Roku will still have the lead in terms of total connected TV users. So, what gives?
The streaming company may be smaller, but it’s clearly forged a brand identity with consumers early on. Part of the reason is that the platform is great value. If you have a “dumb” TV, Roku gets you up to speed. Additionally, the service offers many apps — whereas rival services are still playing catch up.
Finally, Roku is convenient, and allows you to take your (comprehensive) entertainment options wherever there’s internet connection.
Attractive Price Gradations
One of the factors that has always appealed for Roku devices is the many products, and therefore, pricing options. Depending on how much and how robustly you want to stream, the company has a product just right for you.
As it turns out, this is exactly what the consumer was looking for. According to a SurveyMonkey study in January 2017, most Americans considered price to be the most important factor in deciding which TV to buy. This sentiment was one of the main drivers for Roku as it allowed budget-sensitive consumers to enhance their TV’s capacity for relatively little money.
Of course, this is the same dynamic now for other streaming devices. But again, Roku has an advantage in more apps — including its free, ad-supported namesake channel. This brings targeted-ad revenue opportunities that may not be present in some other platforms. Additionally, Roku’s interface is very intuitive, which is another reason why consumers love it.
To put it differently, yes, the competition is charging in. But in my opinion, they’re not offering much differentiation to upset the status quo. And this ultimately benefits Roku stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
