D.A. Davidson Managing Director & Senior Research Analyst Tom Forte joins Yahoo Finance Live to discuss Roku fourth quarter earnings.
Video Transcript
EMILY MCCORMICK: Well, moments ago, Roku also reported quarterly earnings results. And they were weaker than expected across most major metrics. And that stock is falling in the after hours session. Fourth quarter net revenue came in at about $865 million versus the $893 million expected. And Roku’s outlook was also a miss. The company sees current quarter net revenue at $720 million.
For a deeper dive into these numbers and the outlook for Roku, we have Tom Forte, DA Davidson Managing Director and Senior Research Analyst with us now. Tom, taking a look at these results and guidance, is this another sign that expectations and valuations for the darlings of the stay-at-home trade may have gotten a little bit overstretched at this point?
TOM FORTE: Well, I think if you look at the pullback in shares, which even before today shares have been cut in half, I think you can make that argument. But on first blush when you look at the results for the fourth quarter, and now look for the first quarter, it looks like two important problems have persisted for Roku. One, the negative impact on TV units being available from a supply chain standpoint. And number two, advertisers who have their own issues with supply chain scaling back their digital advertising spend.
So yes, I think valuation is part of it. But it looks like two important challenges in the fourth quarter are going to persist in the first quarter.
– And as you mentioned, there has been only a slight loosening in some of the bottlenecks and supply chains. Delays persist in delivering of smartphones to consumers, also the price because of the shortage of semiconductor chips now also making those larger TVs more expensive– up 30% compared to last summer. How do you see the ongoing delays, though, affecting Roku versus some of its streaming player competitors like Amazon, Apple, and Google?
TOM FORTE: Great question. So the challenge for Roku as the number one operating system for smart TVs is, how is this affecting its customer acquisition? And it does seem to be slowing growth in active accounts for Roku. By way of comparison, Amazon, Netflix, and others, they have multiple distribution points, not just Roku.
So to the extent that consumers have smart televisions, they’re less dependent on whether or not there’s a Roku operating system. So I think this is less of a broader issue for others in the streaming space such as Amazon.
EMILY MCCORMICK: So on the flip side of that, then, what is the bull case for Roku going forward? Because, yes, the company is benefiting from this secular shift to streaming. But at the same time, as you mentioned, competition is rising in this space.
TOM FORTE: It’s a great question. So the bull case for Roku remains, historically, their strategic partners are the biggest technology companies when you think about Google with YouTube, or Apple, or Amazon, et cetera, et cetera. Roku, though, is kind of the independent player in the space.
And to the extent that a lot of these companies are looking for new subscribers, we still see that Roku has an amazing mousetrap for getting advertising revenue when these companies are looking to grow their subscription video on demand services. So certainly, these supply chain issues are concerning on a near-term basis. But I think our long-term thesis holds that Roku is still well-positioned– also as more advertising dollars move to advertising video on demand services and away from linear television.
– And, Tom, as we look at two aspects of Roku’s business, the commercialization of software products and monetization of user activity on the platform through things like advertising and subscriptions, where is it best positioned to see stronger growth? And what poses the biggest challenges to that growth?
TOM FORTE: I think it’s amazingly well positioned on the advertising front. So if you think about Roku and you think about the changes Apple’s made from a privacy standpoint, Roku has your credit card, therefore, Roku knows who’s watching what show. So Roku doesn’t have the privacy issues Facebook slash Meta has on the changes in Apple privacy.
So I think Roku is amazingly well positioned for advertising. We just need to get through this short-term challenge from a supply chain standpoint as it pertains to smart televisions.
– We do appreciate your insights. Thank you so much. Tom Forte there, DA Davidson Managing Director and Senior Research Analyst, thank you so much.
