Roku Inc. (ROKU) shares took a significant dip on Thursday following the release of the company’s third-quarter financial results. While the company exceeded sales and platform revenue expectations, investors are closely scrutinizing Roku’s profitability, leading to a sell-off in the stock price.
Roku Beats Revenue Estimates, But Profits Remain a Concern
For the third quarter, Roku reported a loss of 6 cents per share, surpassing analyst estimates for a loss of 32 cents per share. The company’s revenue reached $1.06 billion, demonstrating a 16% year-over-year growth, outpacing analyst forecasts of $1.01 billion.
Platform revenue, which includes advertising and content distribution, saw a 15% year-over-year increase to $908.2 million. Device revenue, consisting of sales of streaming devices like Roku TVs and streaming sticks, also climbed 23% year-over-year to $154 million.
Despite the strong revenue growth, Roku’s profitability remains a concern for investors. The company reported an adjusted EBITDA of $98.2 million with an adjusted EBITDA margin of 9.2%, falling short of analysts’ expectations.
Roku’s Growth in Streaming Households and Hours
The company reported a total of 85.5 million streaming households in the third quarter, representing an increase of 2 million from the previous quarter. This growth was accompanied by a significant surge in streaming hours, reaching 32 billion, a year-over-year increase of 5.3 billion hours.
Analyst Reactions and Future Outlook
Following the earnings report, multiple analysts adjusted their price targets for Roku. Rosenblatt analyst Barton Crockett maintained a Neutral rating on Roku and raised the price target from $61 to $86. Needham analyst Laura Martin reiterated a Buy rating on Roku and maintained a $100 price target. Macquarie analyst Tim Nollen maintained an Outperform rating on Roku and maintained a $90 price target.
Roku also provided an outlook for the current quarter, anticipating fourth-quarter revenue of $1.14 billion and adjusted EBITDA of $30 million.
Roku’s Stock Performance
At the time of publication, Roku shares were down 21.6% at 60.76. The stock’s decline reflects investor concerns regarding Roku’s profitability amidst a challenging macroeconomic environment. As the streaming market continues to evolve, Roku’s ability to navigate competition and improve its profitability will be crucial for its future success.
