COVID-19 has been a mixed blessing for streaming leader Roku (ROKU). On the one hand, the stay at home measures have resulted in outsized account additions and extra viewing hours. However, the advertising industry’s need to preserve cash has resulted in slashed budgets, and therefore less ad spend on Roku’s platform.
That was the narrative that played out in Roku’s estimate beating 2Q report and accompanying earnings call.
The OTT player reported revenue of $356.1 million, up by 42.4% year-over-year and beating the estimates by $41.58 million.
Active accounts grew to 43 million, a 41% increase from last year and ahead of the consensus calls for 42.06 million. The figure also represented the highest acceleration since 3Q18.
Total hours streamed increased by 65% year-over-year while average revenue per user (ARPU) rose by 18% to $24.92.
However, following the report’s release Roku shares dropped by 4% in after hours trading. With Roku outperforming on all key metrics, why the downturn?
Here the negative impact of Covid comes into play. Investors were disappointed by ROKU’s lack of Q3 commentary. Due to the trail of uncertainty left by the coronavirus, the company provided no third quarter guidance. What’s more, Roku management put a dampener on expectations by adding that ad budgets will probably remain depressed well into next year.
Nevertheless, despite the challenges ahead, RBC analyst Mark Mahaney applauded a “solid Q2 beat,” and said, “While we believe Roku’s Ad platform is facing headwinds due to its considerable exposure to Brand advertising spend and its reliance on verticals like Casual Dining, Travel & Tourism, we are struck by the fact that ROKU just printed approx. 50% Y/Y Ad Revenue growth in (hopefully) the most COVID-impacted quarter. That will almost certainly be the strongest Q2 growth among the ‘Net Ad Platforms, in our view.”
Therefore, the 5-star analyst reiterated an Outperform rating, while also giving the price target a boost – bumped from $171 to $208. What’s in it for investors? Upside of 26%. (To watch Mahaney’s track record, click here)
Among the analyst community, the majority are on Roku’s side. Factoring in 8 Buys, 6 Holds and 2 Sells, the streaming player has a Moderate Buy consensus rating. However, Mahaney and his colleagues go their separate ways where price targets are concerned, as the $153.63 average price target implies shares will decline 2% from current levels. (See Roku stock-price forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.