Don't believe the hype about "deteriorating guidance." Roku (ROKU) might not book a profit after all in the crucial holiday quarter when most families buy its streaming TV devices, explains Todd Shaver, growth stock expert and editor of BullMarket.
On the other hand, they might. The only thing that's changed is management's comfort zone on development costs and their impact on the bottom line. And even at the weak end of guidance, the company might lose $0.04 per share. On the high end, shareholders can still look forward to a $0.03 profit with equal certainty.
That's not the end of the world. It's a buying opportunity. For one thing, Roku is close to sustainable profitability but the holiday quarter wasn't going to be a do-or-die milestone.
We were expecting a $0.02 per share loss for all of 2019 and that's still our target. Whether the company comes out $3 million ahead or $4 million behind at the end of 2018 is really a blip in that big picture.
It is all about revenues. Revenues always win out in the end. (Have you heard that before?) Sales were up 38% from $125 million to $173 million last quarter. For the past three years we saw $320 million, $400 million, $515 million and $745 million expected for 2018. $1 billion in revenue is a distinct possibility for 2019. Why the selloff?
Besides, Roku isn't about the holiday season any more. Device sales still matter, but the advertising and media platform is now close to 60% of the overall business and ramping up at a 70% annualized rate. That's where the action is now.
The Roku Player itself is practically a loss leader designed to entice households into the proprietary channels where the ad dollars are made. If the company decided to give the devices away as a special holiday gift, we wouldn't complain about the dent in the margins. We'd embrace the chance to expand the audience.
But these devices still aren't free and the audience is expanding fast enough on its own. Overall accounts approached 24 million in the quarter, up 40% from last year, generating 35% more per active user than they did 12 months ago. Advertisers are loving this platform. So do we. The ads pass 70% of all revenue straight to the bottom line.
All in all, Roku has already crossed the turning point between clever startup and next-generation Media empire. Our revenue targets for the holiday season through 2019 haven't changed— $250-260 million. Guidance didn't soften there one cent. That's what matters now. Companies like this become extremely compelling buyout targets. Don't miss the boat.
