Earnings

Roku earnings: COVID-19 accelerates cord-cutting

Roku earnings: COVID-19 accelerates cord-cutting
  • Q1 revenue: $321 million (+55% YoY, -22% QoQ, vs. $306.7M expected)
  • Q1 loss: $55.2M (up 515% YoY from $10.7M in Q1 2019)
  • Q2 guidance: Roku has withdrawn its guidance for the rest of the year.

The big number: Roku closed in on 40 million active accounts in Q1, ending March with 39.8 million accounts, and growing its user base 37% year-over-year. Account growth has been accelerating under shutdown orders, with Roku disclosing that new account creation increased by more than 70% in April alone. Company stock surged 8% Thursday before the afternoon earnings call, but those gains were being erased in after-hours trading.

People are talking: "The pandemic is accelerating the shift to streaming by both viewers and the industry," said Roku CEO Anthony Wood during the earnings call. Consumers streamed 13.2 billion hours in Q1 of 2020, up 49% year-over-year, as streaming became everyone's favorite pastime during quarantine.

Opportunities: Roku executives argued Thursday that consumers continued to move away from traditional TV over the past couple of weeks despite being homebound, highlighting that prime-time TV viewing was down 18% year-over-year among 18- to 34-year-olds from mid-March to mid-April. Many of these viewers are opting for streaming instead, a trend that could accelerate during a prolonged economic downturn. "We believe that the pandemic is accelerating secular trends towards streaming, and that these trends are permanent," Wood said. "All those cord-cutters are not gonna re-sign up for cable."

Threats: Roku makes most of its money with advertising, and the company warned investors that it had seen "higher than normal cancellations" amid a general ad market decline. However, the company said it still expected to grow its ad business in 2020, as advertisers shift dollars to digital, and, among other things, look for ways to place advertising that would otherwise have run against live sports.

The power struggle: Roku has made some baby steps over the past two years to compete more holistically against Amazon and Google, which included the launch of its own line of smart speakers. The company also reportedly developed its own router, but has yet to officially announce that device. Engagement in these non-core business areas could slow over the coming months, as Roku told investors Thursday that it took steps to reduce the growth of its expenses at the end of the past quarter, cautioning that could slow progress in "strategic investment areas."

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