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Roku Inc. (NASDAQ:) released its Q3 2023 earnings results, which revealed an earnings per share (EPS) of $-2.33, falling short of the estimated $-1.99 EPS. Despite this, the company displayed a robust growth in active accounts, adding 2.3 million during the quarter, and recording over 100 billion streaming hours on a trailing 12-month basis for the first time.
The company’s platform revenue saw an 18% year-over-year rise, driven by strong contributions from content distribution and video advertising. The surge was further boosted by key partnerships with Spotify (NYSE:) and NFL, leading to the introduction of video ads in the Spotify app on Roku devices and the launch of the first league-branded zone in the Roku Sports Experience.
By the end of Q3, Roku had 75.8 million active accounts globally, reflecting a 16% YoY increase. The total net revenue came in at $912 million, marking a 20% YoY increase with platform revenue contributing $787 million. The gross profit for Q3 stood at $369 million, a 3% YoY increase.
In addition to top-line growth, Roku implemented measures such as workforce reduction and removal of select content to control operating expenses (OpEx) growth rate year-over-year. This strategy led to a double-digit decrease year-over-year in OpEx and contributed to a positive free cash flow of $239 million in Q3.
However, Roku faced restructuring and impairment charges that affected their gross profit margins. Average revenue per user (ARPU) decreased by 7% YoY but increased quarter-over-quarter for the first time since Q3 of last year.
Looking ahead to Q4, despite the uncertain macro environment and challenging comparisons due to limited fall release schedules, Roku anticipates total net revenue of $955 million, up 10% YoY, and a gross profit of $405 million. The company expects a gross margin of 42% and a positive adjusted EBITDA of $10 million. Roku also forecasts the YoY growth rate of video ads in Q4 to be similar to Q3.
The company’s commitment to achieving positive adjusted EBITDA for the full year 2024 was reiterated during their earnings call, which included Conrad Grodd, Anthony Wood, Dan Jedda, Charlie Collier, and Mustafa Ozgen.
InvestingPro Insights
Taking a closer look at Roku through InvestingPro’s lens, a few key points stand out. The company has been experiencing a declining trend in earnings per share, which aligns with the Q3 2023 results. Interestingly, the company’s stock price has seen a significant return over the last week, with a 38.36% increase. This could be a reaction to the robust growth in active accounts and strategic partnerships with Spotify and NFL, despite the challenging financials.
InvestingPro’s data also highlights that Roku’s market cap stands at a substantial $11.04 billion. However, the company’s P/E ratio is -12.69, indicating that it is not profitable as of the last twelve months as of Q3 2023. This aligns with one of the InvestingPro Tips, which points out that analysts do not anticipate the company will be profitable this year.
On a more positive note, Roku holds more cash than debt on its balance sheet and its liquid assets exceed short term obligations. This suggests that the company is in a relatively strong financial position to weather any short-term financial turbulence.
In conclusion, while Roku faces some challenges, it also has several strengths. The company’s financial health and recent stock price movements suggest potential for growth, and the InvestingPro platform offers over 10 additional tips for deeper insights into Roku’s performance and future prospects.
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