Four highlights from Roku’s (ROKU) Q4 earnings report

Shares of Roku Inc. (NASDAQ: ROKU) fell 1.1% in morning hours on Friday. The stock has gained 274% over the past 12 months. The company reported strong results for the fourth quarter of 2020 a day ago, exceeding expectations, and provided an upbeat outlook. Net revenue increased 58% year-over-year to $649.9 million and the company delivered a surprise profit of $0.49 per share in the quarter.

User base

Streaming gained momentum in 2020 during the COVID-19 pandemic as people spent more time at home exploring various entertainment options. Roku benefited from this trend, witnessing strong growth in active accounts, particularly during the second and third quarters of the year. The company added over 14 million active accounts during 2020. At the end of the fourth quarter, Roku had 51.2 million active accounts, reflecting a 39% growth year-over-year.

Engagement   

Roku witnessed significant growth in engagement levels during 2020 fueled by its investments in content and other features as well as the launch of third-party streaming channels. In the fourth quarter, streaming hours increased 55% year-over-year to 17 billion hours, bringing the total streaming hours in 2020 to 58 billion.

The strong performance of streaming services like Disney+, HBO Max and Peacock has benefited Roku in terms of engagement. In Q4, Roku active accounts streamed an average of 3.8 hours per day, reflecting a 10% growth from the same period last year. It is worth noting that two months ago, Disney (NYSE: DIS) revised its long-term subscriber outlook for Disney+ as the rapid growth of the streaming service allowed it to surpass its earlier guidance range well in advance.

In its shareholder letter, Roku stated that according to research from Parks Associates, 43% of all broadband households in the US that currently pay for traditional TV are likely to switch to streaming within the next 12 months. The company added that a report by Conviva indicated that the Roku platform held a 41% share of streams, making it the most popular streaming platform.

Roku’s investments in The Roku Channel contributed meaningfully to growth in engagement. In the fourth quarter, the company saw usage of The Roku Channel in the US more than double year-over-year reaching around 63 million people. Roku added over 50 linear channels in Q4 and the acquisition of Quibi gives it access to a vast amount of content, which it will begin rolling out later this year.  

Higher per-user engagement helped drive average revenue per user (ARPU) to $28.76 at the end of the fourth quarter, which reflected a growth of 24% from the prior-year period.

Advertising

Despite advertising in general witnessing a decline in 2020 due to the pandemic, Roku was able to deliver strong growth in advertising helped by a rising interest in streaming by traditional TV advertisers as well as its investments in its ad platform and ad tech capabilities. In Q4, Roku monetized video advertising impressions more than doubled on a year-over-year basis.

Roku is witnessing changes in the TV advertisement strategy as advertisers are looking to shift away from the traditional TV audience, which now consists predominantly of older viewers, to the streaming audience which largely comprises younger viewers. The company is also seeing strong growth in advertiser segments like retail. In Q4, retail advertising spend on the Roku platform more than doubled YoY.

Outlook

Roku expects year-over-year comparisons in 2021 to be volatile. The company expects strong comparisons in the first half of 2021 versus the same period in 2020 when the pandemic was in its early stages.

In the second half of 2021, comparisons are expected to get tougher as the company witnessed strong performance during the same period in 2020 due to a higher interest in streaming. For the full year of 2021, Roku expects its overall year-over-year revenue growth to fall below the levels it expects to see in the first and second quarters of 2021.

Roku believes there is vast growth opportunity for streaming in the future and the company is focusing its efforts on driving engagement and exploring monetization opportunities.

Click here to read the full transcript of Roku’s Q4 2020 earnings conference call