Proactive Investors - Roku Inc (NASDAQ:ROKU) shares plunged almost 10% as its sales guidance for the second quarter missed estimates and it cautioned the benefits of price hikes are waning amid rising competition between ad-supported streaming services.
For Q2, Roku projected revenue of $935 million, below estimates of $955 million.
This overshadowed the company’s better-than-expected first quarter results.
Q1 revenue increased 19% year-over-year to $882 million and ahead of analyst estimates of $855 million.
It narrowed its net loss from $212.5 million in the year-ago quarter to a loss of $72 million.
The company achieved positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and free cash flow for the third quarter in a row.
Analysts at Wedbush believe Roku has again erred on the size of conservatism with its Q2 guidance, which it described as “sobering.”
“Roku’s Q2 guidance implies a drop off in net account additions as TV sales are likely to stall, although we expect a reacceleration throughout the year,” they wrote.
“Its average revenue per user (ARPU) should remain relatively flat through the year-end as Roku benefits from better scatter trends, political advertising, and sports-adjacent ads, offset by international expansion into regions with a lower cost per thousand impressions.”
The analysts believe Roku is playing to its strengths and see significant opportunities ahead for the company.
They noted that, after Roku achieved positive EBITDA a year earlier than expected in 2023, it is on track to achieve $100 million in annual EBITDA for 2024.
“We believe Roku has found religion in generating and expanding positive EBITDA and will not revert to excessive spending for long-term growth. Instead, Roku has re-focused on balancing new initiatives that result in near term return on investment (ROI) with expanding free cash flow and tracking toward positive net income,” they wrote.
The analysts reiterated their ‘Outperform’ rating on the stock but lowered their price target from $80 to $75 on more conservative 2025 and 2026 topline and gross margin assumptions.
Roku shares traded down 9.9% at $56.60 on Friday afternoon.