Roku Stock Is Still a Bargain at Two-Thirds of Next Year’s Sales

During the past couple of years, Roku has experienced a lot of hype and a lot of people have invested a lot of money in the stock. However, a recent report has uncovered that the company has not yet started to make any profits. In fact, revenue growth has been slowing down and ad monetization is also going through a tough period.

Revenue growth slows down

Streaming device maker Roku (ROKU) is seeing slow revenue growth. This is a result of the company’s ongoing supply chain issues, the weakening advertising market, and the deterioration of its platform metrics. However, the stock is still a bargain at two times next year’s sales.

While the company’s quarterly report showed a 16% year-over-year increase in active accounts, analysts pointed to several factors that could lead to a rough period ahead. These include economic pressures on consumers, the deterioration of its ARPU, and the dwindling pricing power in the advertising market.

As a result, Roku is experiencing slow growth in both its revenue and active user base. This is particularly apparent in its set-top-player business, which saw revenues fall 14% from the second quarter of 2021.

Meanwhile, Roku’s platform gross margin continues to decline. This is a sign of waning pricing power in the advertising market, and it is also an indication that the company’s ad spending is not increasing in the ways it once did. This is a problem that could persist for the foreseeable future.

Advertising revenue stalls out

Streaming device maker Roku (ROKU) has warned that the second half of 2022 will be tougher than its first half. It expects that its headcount will grow at a slower rate and advertising revenue will stall out. But executives say the company is in a strong long-term position and should see growth when economic conditions improve.

During its latest quarterly report, the company said it saw a 19 percent increase in hours of ad-supported streaming. This was the company’s fastest year-over-year growth rate in nearly a year. During its third quarter, Roku added 2.3 million new active accounts. Its total subscriber base grew to 65.4 million.

Revenue climbed 12 percent to $761 million. However, the company’s gross margin declined to 55.8 percent from 58.8 percent last quarter. This is due in part to the waning pricing power in the advertising industry.

Roku has been shifting its focus to ad-supported streaming channels and programming originals. It has also been aggressively negotiating digital video upfronts. In its most recent upfront, it topped $1 billion in total commitments. It closed deals with all seven of the major agency holding companies.

Ad monetization under pressure

Streaming TV platform provider Roku stock has fallen in recent trading. Its shares fell more than 20 percent after the company reported a narrower-than-expected loss and revenue below Wall Street’s estimates. It also warned of ad monetization pressures.

While the company has maintained its market share, it has faced ad-spending pressures in recent quarters. The war in Ukraine and tensions with China have affected companies’ marketing budgets. Advertisers have less money to spend on new media platforms.

As a result, the streaming device company has lost one-quarter of its value since the start of the year. Analysts are concerned that ad spending will slow in the coming months. The company also forecast that its holiday-quarter revenue will fall below Wall Street’s expectations.

While the ad-spending trend has been slow, the company’s annual Revenue Per User (RPM) has grown by a healthy 51% over the past year. However, the company is still in the early innings of the Connected TV advertising market.

Earnings Outlook

Earlier this year, Roku, Inc. (ROKU) reported a narrower-than-expected loss for the third quarter. The company lost 19 cents a share on sales of $733.7 million. The company’s platform business accounted for 88% of revenue in the quarter. However, its player business fell by 19 percent compared to the prior year. The company blamed supply chain disruptions as the primary reason for the decrease in its player revenue.

Roku provides a streaming video platform. The company generates its revenues from advertising, OS licensing, and subscription sales. The company also has an ad-supported video-on-demand service, which it licenses to other companies. In addition, Roku owns a variety of original comedy series and animated series.

The company has grown its user base mostly in the U.S. and Canada but is now getting ready to expand internationally. In the first quarter, Roku saw a shift in the amount of television ad dollars going toward ad-supported streaming services. It also said it had seen a trend toward subscription video-on-demand.