Roku Stock Gains on Results, Analyst Upgrades to Neutral as Risks Now Priced In By Investing.com

Roku (NASDAQ:) reported better-than-expected Q1 net revenue, driving its shares up more than 5% in premarket trading.

The company reported net revenue of $733.7 million, up 28% YoY and above the consensus estimates of $720.5 million. Average revenue per user stood at $42.91, up 34% YoY. Roku also reported Q1 EPS of ($0.19), $0.01 worse than the analyst estimate of ($0.18).

The number of active customer accounts totaled 61.3 million in the period, up 14% YoY and in line with the expected 61.4 million. Roku reported 20.9 billion streaming hours, up 14% YoY and above the expected 20.7 billion.

The company reported a gross margin of 49.7%, down from 56.9% in the same period last year and compared to the consensus estimates of 50%.

For Q2, Roku expects net revenue of $805 million, missing the analyst expectations of $826 million. Adjusted EBITDA is expected to be $0, while analysts were looking for $21.2 million.

The company estimates a Q2 gross profit of $395 million.

MoffettNathanson analyst Michael Nathanson upgraded Roku to Neutral from Sell while adding that investors now know what they are buying. The upgrade call comes as shares are down over 60% since Nathanson downgraded to Sell.

“We are moving to a Neutral rating as we believe market sentiment and forward estimates reflect a slightly more appropriate view of the company. While we were notably below consensus estimates for revenues and profits at the time of our downgrade, we are now in line with consensus expectations for Roku,” Nathanson told clients in a note.

“With that said, we still see risk to forward estimates due to the company’s expectations of accelerating 2H 2022 revenue trends, increasing content spending on The Roku Channel and macro pressures in forward ad budgets. Given the heavy round of investment spending and healthy use of stock-based compensation, Roku’s valuation on traditional metrics still looks relatively stretched,” he added.

Susquehanna analyst Shyam Patil also weighed in positively as the earnings report showed Roku exected strongly in a difficult environment.

“ROKU was able to outperform expectations in 1Q despite facing continued supply chain disruptions and new macro headwinds such as the war and rising inflation. We believe the strong results in the choppy environment demonstrate the momentum of the secular shift from linear TV to CTV, underpinning our Positive view of ROKU… We continue to see ROKU as one of the best positioned companies to capture the massive advertising opportunity in CTV,” Patil said in a note.

By Senad Karaahmetovic