Roku stock appears to be turning the corner following its Q3 report last week, rising by 40% over the last five trading days. There was much to like about Roku’s numbers. Revenues came in at $912 million, up by 20% versus last year and well ahead of the roughly $860 million consensus estimates. The market for video advertising has shown signs of a rebound, following a tough couple of quarters, with Roku also seeing higher content distribution sales. Platform revenue was up by 18% versus last year. Roku also added more new users than anticipated, with the total user base standing at 75.8 million, a net increase of 2.3 million active accounts from the previous quarter. This helped to more than offset a 7% decline in average revenue per subscriber. On the hardware front, Roku is seeing a strong uptake for its Roku branded TVs, which launched earlier this year with the sets accounting for a greater portion of net additions compared to the company’s streaming boxes in international markets over the last quarter. Investors are also likely pleased with the performance of Roku’s proprietary streaming offering, the Roku Channel. In Q3, the company reported a notable surge of over 50% in streaming hours on the channel versus the previous year. In September, the Roku Channel accounted for nearly 3% of all TV streaming, a metric that appears to be in line with the levels of engagement observed on other prominent streaming services, such as Paramount+, Peacock, and Max. This could help the company drive higher-margin advertising revenue in the long run.
Roku’s fast-growing operating expenses particularly relating to sales and marketing have been a major concern for investors. However, the company has made some progress in recent quarters with managing costs. For example, for Q4 the company anticipates year-over-year growth in operating expenses to come in the negative mid-teens, marking a significant improvement from year-over-year growth of approximately 70% in Q4 2022. The company appears to be doubling down on its cost cuts, noting last month that it would lay off about 10% of its total workforce while consolidating its office space utilization.
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