Roku Stock Plunges 17% on ‘Challenging’ Media and Entertainment Outlook for 2024

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The streamer and hardware maker topped 80 million active accounts in 2023, up 14% year over year

Roku Earnings
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Roku shares fell as much as 17% in after-hours trading on Thursday after the smart TV operating system company warned of a “challenging” media and entertainment outlook for 2024, despite beating Wall Street expectations for the fourth quarter of 2023.

Roku Media president Charlie Collier told analysts on the company’s earnings call that the M&E category went through “a period of spending at unsustainably high levels.” CEO Anthony Wood added that media giants “spent a lot of money during the go-go COVID years” as part of a push to sign-up subscribers.

“Now that they’re retrenching and focusing on a sustainable business that spending is normalized, it’s down a little bit,” Wood added. “But it’s going to continue to pick back up and over time it will be a growth business for us.”

Here are the top-line results:

  • Net loss: $78.3 million, compared to a net loss of $709.7 million in the year ago period.
  • Earnings per share: a loss of 55 cents per share compared to an estimated loss of 65 cents per share by analysts surveyed by Zacks Investment Research.
  • Revenue: $984.4 million, up 14% year over year, compared to an estimated $959.7 million by analysts surveyed by Zacks Investment Research.
  • Active Accounts: 80 million in 2023, an increase of 14% year over year, with 4.2 million added during the fourth quarter

Platform revenue for the quarter, which is largely based on advertising sales and a subscription revenues split with partners, grew 13% year over year to $828.9 million. Meanwhile, devices revenue increased 15% year over year to $155.6 million.

While Roku has seen a rebound in overall ad revenue, Collier emphasized that political revenue will continue to grow but likely remain “a relatively small contributor as a percentage” of its ad business.

Viewers streamed more than 29 billion hours during the quarter and hours increased by 18.6 billion year over year to 106 billion in 2023 — its first year topping 100 billion streaming hours.

Average revenue per user fell 4% year over year to $39.92, reflecting an increasing share of active accounts in international markets where Roku is focused on growing scale and engagement. Adjusted EBITDA was flat year over year at $47.7 million for the quarter, while gross profit grew 20% year over year to $437.9 million.

In September, Roku said that it would take several measures to bring down its operating expense growth, including laying off 10% of its workforce, conducting a strategic review of its content portfolio and ceasing the use of certain office facilities.

Operating expenses for the quarter fell 12% year over year to $512 million. The company recorded total restructuring charges of $356.1 million in 2023, including $65.5 million in content write-offs and $83.2 million in employee severanced and related shares.

“We were very focused on improving our operational efficiencies, right-sizing opex and we made a lot of progress in that area achieving positive EBITA for the full year, a year ahead of our targets, so we’re very happy with that,” Wood said. “Obviously we’re going to continue this year to focus on operational efficiencies, but we’ll have a lot more time this year as a management team to focus on innovation and growth … so that’s the big focus for us in 2024.”

Roku reported free cash flow of $175.9 million for 2023, compared with negative $154.1 million in 2022.

Looking ahead, Roku remains focused on achieving profitability as it remains mindful of “near-term challenges in the macro environment and an uneven ad market recovery.”

Despite the challenges, the company expects to maintain its platform growth rate from the fourth quarter into the first quarter of 2024. Roku anticipates total net revenue in the first quarter of $850 million, a net loss of $90 million, gross profit of roughly $370 million and break-even adjusted EBITDA.

Roku said the “enormous volume of content and live events on streaming” is an opportunity for the company moving forward, given its “inherent advantage as the programmer of the home screen to help our viewers find what they want to watch, while simultaneously growing our monetization.”

It also believes that ad-supported streaming options will further accelerate the shift in ad dollars from traditional TV.

“Roku has the tools and expertise to drive engagement, which is critical in an ad-supported environment,” the company added. “With our platform advantages, first-party relationship with 80 million Active Accounts, and deep user engagement, we are well-positioned to accelerate revenue growth in future years.”

Thursday’s slide in Roku shares comes after the stock tumbled 9% on Tuesday after The Wall Street Journal reported that Walmart is in talks to acquire TV maker Vizio for more than $2 billion in an effort to boost its advertising business.

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