Roku (ROKU) is down 18% premarket after the company reported strong quarter fourth quarter results but guided first quarter revenue just below estimates.
Expectations were just too high coming into the print. The stock was up over 150% since the company blew out third quarter estimates in its first quarterly report after the company went public last September.
Fourth quarter revenue rose 28% year/year to $188.3 mln vs. $175-190 million guidance. Platform revenue grew 129% to $85 million while Player revenue fell 7% to $103 million. Roku is trying to increase active accounts (which were up 44% to $19.3 million) by selling its streaming devices and licensing its technology to TV manufacturers in order to increase the much higher margin Platform revenue. Platform gross margin was 75% vs. 10% for the Player. Player revenue consists mostly of advertising. As a result, gross profit grew 64% YoY to $73.5 million; total gross margin was up almost 900 basis points year/year to 39%.
Streaming Hours grew 55% YoY to 4.3 billion hours. As more consumers shift their TV viewing to OTT, advertisers are increasingly following them. Roku's ad strategy is premised on three goals: providing advertisers with the ability to continue reaching TV viewers as viewers migrate out of the traditional linear TV ecosystem; significantly advancing the state of TV advertising by enabling the measurement, targeting and interactivity that advertisers have come to expect from modern digital media; and continuing to innovate the streaming advertising experience.
"We enter 2018 with strong momentum and are very encouraged by the trends we are seeing in our Platform segment which we expect to contribute the majority of our total net revenue in 2018, and the vast majority of our total gross profit. Given the trajectory of the Platform segment, we expect rapid revenue growth and gross margin expansion to continue in 2018. We plan to remain focused on driving active account growth, overall gross profit dollar growth, and increasing customer value. Our profitability goal for the year is to operate our business at, or near, break-even on an operating cash flow basis while we reinvest gross profit into strategic areas that can drive continued long-term growth."
While revenue guidance for 2018 was mostly above consensus, first quarter revenue guidance was judt below estimates. Roku guided for a 42% gross margin this year vs. 39% last year.
At ~10x sales estimates, there wasn't much room for error; the sales multiple is closer to 7x this morning.
The stock is testing support near the $40 level premarket. Almost 37% of the 17 million share float is sold short.